Bank bailout bill 'nearly halved'

The Government's bill for propping up the banking sector has nearly halved from its peak - but still stands at a mammoth £512 billion, a report has revealed.

In its latest update on state support to the banking sector, the National Audit Office (NAO) said the figure had reduced dramatically from the £955 billion seen at the height of the financial crisis.

The outlay has eased after the repayment and closure of some bank support schemes, as well as the removal of guarantees - such as those offered to Northern Rock depositors.

However, the Government is still on the hook for support including £131 billion to Royal Bank of Scotland under the toxic asset insurance scheme, more than £70 billion for its stakes in part-nationalised players and £22 billion in loans to Northern Rock.

The NAO said while the Government would still be paying for the support for many years, the most likely scenario was that there would be no overall loss on the main guarantees, such as the asset protection scheme for RBS.

But the NAO said it was still unclear if the taxpayer would ever be able to recoup its losses on stakes held in RBS and Lloyds Banking Group - currently in the red to the tune of £12.5 billion.

The report confirmed that RBS and Lloyds have not recovered from the financial crisis at the same pace as their competitors, with shares still at a paper loss for both banks despite clawing back into profit earlier this year.

The latest findings also revealed that despite the overall reduction in total support, the Government is shelling out a mammoth £5 billion a year in interest on borrowings used to finance the bailout support.

It took out a further £7 billion in net debt this year to finance banks, at £124 billion, after interest on borrowings and money forked out in the restructuring of nationalised Northern Rock.

Interest on bailout borrowings is 11% of the total interest on public sector net debt, according to the NAO, although it added it was largely being offset by fees and interest received from banks in return for support.