Taxpayers hit amid banks break-up

Royal Bank of Scotland is to cut 3,700 jobs in its UK branch network

Taxpayers have been hit for at least another £28.7 billion as two state-backed lenders unveiled break-up plans on a seismic day for the UK banking sector.

Royal Bank of Scotland and Lloyds Banking Group will have to shed more than 900 branches to ease European competition concerns over the vast state support given to them in the past year.

The disposals - which could take up to four years - will put around 10% of the UK retail banking market up for grabs for smaller players or new entrants.

The banks' £39 billion lending commitments to homeowners and businesses remain unchanged while they have had to agree to new rules on staff bonuses to secure the extra billions being pumped in. Taxpayers have already paid out £37 billion for shares in the two banks since the crisis began although Lloyds paid back more than £2 billion in the summer.

RBS - which will also have to sell its Churchill and Direct Line insurance arm as well as parts of its investment banking business - is putting £282 billion in toxic debts into a taxpayer-backed insurance scheme. The Government is pumping an extra £25.5 billion into the bank under the plans - with a further £8 billion ready if needed - taking its stake to 84%. RBS will also be able to claim tax write-offs on its losses worth a potential £10 billion.

Lloyds is paying £2.5 billion to avoid the scheme but the Treasury is shelling out £5.7 billion to support a record £13.5 billion rights issue launched by the bank, which will remain 43% state-owned. The bank has been able to raise the funds due to a "stabilising" UK economy but has 2.8 million private shareholders who will not receive dividends for at least two years.

Chancellor Alistair Darling said the plans would increase competition and represented a "better deal" for the taxpayer. The taxpayer's potential exposure has been cut by more than £300 billion mainly due to Lloyds pulling out of the Asset Protection Scheme. But Shadow Chancellor George Osborne said: "There is still no guarantee that today's plan will get credit flowing in the economy."

Lloyds will sell at least 600 branches, or about 4.6% of the total market share of UK current accounts, taking its market share to around 25.5%. But it avoided tougher sanctions by pulling out of the APS. RBS is selling 318 branches of the former Williams & Glyn's outlets in England and Wales and its NatWest branches in Scotland. These represent 14% of its UK network and will reduce its retail market share by 2%. Its share of the small business banking market will fall by 5%.

Unite warned that up to 25,000 jobs were at risk because of the Government's plan to sell off parts of the banks - and called on ministers to save jobs rather than securing the best price for the banks' assets.

National officer Rob MacGregor said: "We cannot allow a situation to arise where some 25,000 loyal workers in bank branches in high streets and towns across the country are made to pay the price for the banking executives' recklessness. Any potential buyers should be assessed on their commitment to job security and protection of terms and conditions, not short-term profits."