Government must take control of financial services empire

The Government controls 54 financial institutions from the Royal Bank of Scotland and the Student Loans Company to the British Business Bank, but has no unified system in place to manage its enormous investments, the National Audit Office (NAO) has revealed in a highly critical report.

Swathes of the institutions were set up to deal with problems that no longer exist, indicating they have survived beyond their useful lifetime, simply because the Government has failed to manage its operations effectively.

The stakes in the bailed-out banks are run by UK Financial Investments, but those high-profile holdings are just the tip of the iceberg, the report shows.

While the Government is planning to privatise assets worth £62.6bn, in the form of its stakes in Lloyds Banking Group and RBS, as well as portfolios of student loans, that is a small proportion of the overall holdings. The NAO estimates that the assets which are wholly-owned by the Government are worth £222bn.

On top of that, the Government is still ramping up its financial interventions in the economy, such as the Help To Buy schemes, which have grown to £3bn.

“It is unclear that any single area of government is taking a portfolio view of these institutions,” the NAO said, adding that such an approach could help the Government manage risks to the taxpayer.

“A portfolio approach offers the advantage of providing oversight, beyond departmental boundaries, of identifying and managing potential exposure to risk and the ability to benchmark performance across institutions and within sectors,” it said.

This lack of focus means the sprawling empire of state-owned financial institutions is not necessarily carrying out its original purpose, according to auditor general Amyas Morse.

“Some of these institutions appear to have survived the market conditions they were created to alleviate after the financial crisis, and the rationale for their existence in the public sector is questionable,” he said.

“The Government’s plan to accelerate its asset sale programme is unprecedented in scale and aims to reduce its exposure to the financial sector. We expect the Government to demonstrate good practice when it disposes of these investments.”

The Treasury said it is taking action to get to grips with the problem.

“We are determined to get the best value for taxpayers from the assets the Government owns and manages on their behalf, and to reduce the level of public debt,” the Treasury said.

“That is why the Government is merging UK Financial Investments and the Shareholder Executive into one organisation, to return Government investments back to the private sector.