How much will taxpayers end up paying to bail out banks?

We all know that over the past year the UK’s banks have got themselves into a right financial pickle, and many have had to scale back on their lending operations enormously because they didn’t have the finances to continue as they had been before the global credit crunch swept across the nation.

This has proven to be bad news for consumers and the economy as a whole, with credit conditions tight, consumers being unable to get the finance and credit that they need, spending levels down, and businesses suffering to the point where the nation has been plunged into recession.

Last year, in a bid to try and oil the wheels of the finance industry, increase lending levels, and get the economy moving again, the Prime Minister, Gordon Brown, announced the launch of a mortgage rescue plan, and this involved ploughing around £37 billion of taxpayers’ money into the banking system. However, recent reports have increased concern that despite the billions of pounds that have been ploughed into the banking system problems may still be afoot, with mortgage rationing set to get even worse over the course of this year and talks of billions of dollars more of taxpayers’ money being handed over to the banking industry.

According to reports the Prime Minister, Gordon Brown, and the Chancellor of the Exchequer, Alistair Darling, have not ruled out another cash injection for the banking industry, although they have said that this course of action was not their first option. Instead, they have been looking into a multi-billion pound insurance type scheme, and this would involve the Treasury taking on some of the risk of debts. It would entail banks paying a fee in order to reduce the losses that they could otherwise face on the money that they lend to businesses and households.

Opposition parties are, of course, using the massive expenditure of taxpayers’ money on the banking industry as a way to attack the Labour government. However, in response to having the last bailout scheme branded a failure by opposition parties, Gordon Brown recently stated: ‘I don’t think you can judge the success of recapitalisation by what happened in one month. ‘I think you’ve got to judge it as a necessary means in which by saving the banks – and saving is the right word – we restore the ability for them to fund businesses and mortgages, and that will happen over the next period of time.’

He added that another bailout scheme was not the first thing that the government was considering to try and rectify the chaos in the banking system, and this was backed up by Alistair Darling, who said that another bailout was not the ‘first port of call’ for the government. He added: ‘When I announced our original plans in October, I said it would be necessary for us to continue to take whatever measures were necessary to ensure that we get lending in the system.’

However, officials from the Conservative Party and the Liberal Democrats are not impressed at the prospect of having to plough more of taxpayers’ cash into the banking system. George Osborne, the Shadow Chancellor, stated: ‘If the Government has to revisit bank recapitalisation then it will be a stunning admission that their whole approach to the recession isn’t working. Gordon Brown’s recession policies are becoming an expensive failure.’

Vince Cable from the Liberal Democrats said: ‘We cannot have a situation where the taxpayer makes open ended financial commitments to the banking system when the banks then wilfully put their own short-term self interests ahead of the national economy.’

Tags: right financial pickle, taxpayers bail banks, UK's banks, credit crunch, bank bailout, finance