OBR To Slash Forecast For Rescued Bank Stakes

The Government's fiscal watchdog is to slash its forecasts for revenues from the sale of shares in Britain's bailed-out banks, leaving the Treasury facing a post-referendum black hole in the public finances.

Sky News has learnt that the Office for Budget Responsibility (OBR) will project a significant cut in the sums that the Government will raise from disposing of stakes in Lloyds Banking Group (Other OTC: LLOBF - news) and Royal Bank of Scotland (LSE: RBS.L - news) (RBS) during this parliament.

The OBR said in March that George Osborne, the Chancellor, could expect to generate £21.5bn from the sale of RBS shares alone between 2016-17 and 2019-20.

However, that forecast looks virtually impossible to achieve given that on Monday morning, shares in RBS had slumped to a level which meant that the taxpayer's entire 73% stake in the bank was now worth less than £18bn.

Shares (Berlin: DI6.BE - news) in RBS and Barclays (LSE: BARC.L - news) was halted briefly on Monday morning after falling sharply, while bank shares across European markets plunged amid continuing fears about the impact of the UK's decision to leave the EU.

The OBR will provide its next update on the likely revenue from bank sales either alongside an emergency budget - although Mr Osborne appeared to retreat on Monday from his pre-referendum suggestion that one was inevitable - or the Autumn Statement later this year.

Whether it will be Mr Osborne who delivers that statement is unclear, after he signalled that he would provide an update on his future "in the coming days".

David Cameron's successor as Prime Minister is likely to be in place by October, with speculation that Mr Osborne could yet decide to serve in an administration led by Boris Johnson.

The Treasury has already been forced to slash its forecast for the expected proceeds from the sale of RBS shares.

In last November's Autumn Statement, it predicted it would generate £30.8bn from selling RBS stock by 2020-21 - a figure which is now larger than RBS's entire market value.

Last August, the Chancellor sanctioned the sale of a 6% stake in RBS, raising £2.1bn, but the transaction's crystallisation of a £1bn loss for taxpayers has prompted demands for an inquiry.

On Monday, RBS shares were trading at around 179p, barely one-third of the 502p average cost of the holding bought by the then Labour government nearly eight years ago.

Mr Osborne has already been forced to postpone plans for an offering of Lloyds Banking Group shares to ordinary investors, with plans for an autumn sale now certain to be abandoned.

Bank analysts said that in total, the shortfall facing the Treasury across this parliament could be well over £10bn compared to the anticipated revenues from bank sales.

The Chancellor has confirmed that he is seeking to sell the remnants of the Bradford & Bingley loan book in a series of transactions aimed at recouping "sufficient proceeds for B&B to repay the £15.65bn debt to the Financial Services Compensation Scheme and, in turn, the corresponding loan from the Treasury".

That process is also likely to be delayed.