The number of financial firms that the Government owns at least part of has doubled in the last 10 years.
The Government has poured billions of pounds of taxpayers' money into the financial system since the credit crunch, most notably buying up stakes in the likes of Lloyds Banking Group and Royal Bank of Scotland, while nationalising Bradford & Bingley and Northern Rock.
What's incredible is that today, seven years after the financial crisis began, the state still owns stakes in no fewer than 54 different financial institutions.
HM Treasury's spending spree
Back in 2005, before the financial crash, the state owned stakes in 27 financial institutions, none of which were acquired as the result of emergency bailouts. A decade later and this number has doubled.
What's happened is that, as well as bailing out Britain's failing banks, the state has been setting up various financial vehicles that it uses to carry out public policy. Almost every time that the Government starts a new funding programme, such as the Help to Buy subsidy for new homes, it creates yet another new financial institution and adds this to the UK's swelling balance sheet. As a result, since 2004 the number of policy-related institutions has tripled from 12 to 36.
These 54 stakes held by the Government have a total asset value exceeding £222 billion. Of this total, bailed-out banks are worth around £109 billion. We paid £107.6 billion for these stakes, so HM Treasury is sitting on a nominal profit of £1.4 billion from these bailouts.
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What we own today
A lot of people work for these policy-related institutions. Excluding workers at banks acquired as part of the Government's interventions, there are 10,451 employees working at 23 of these state-sponsored financial institutions.
Where the Government of the day seeks to address specific market failures in certain sectors, generally the response is to create a custom-made financial vehicle to address these shortcomings. In particular, policy responses have led to the creation of new institutions in housing, student loans, green energy and small business lending. For instance, thanks to the success of the Help to Buy housing subsidy, this vehicle now owns stakes in domestic properties totalling over £3 billion.
Here's what our taxes have bought us. The following table shows the total assets and liabilities of the seven state-owned financial institutions with the biggest balance sheets:
|
Institution |
Total assets (£bn) |
Total liabilities (£bn) |
Net assets (£bn) |
|
UK Asset Resolution Limited* (UKR) |
66.1 |
-59.1 |
7.0 |
|
Student Loans Company Limited (SLC) |
42.2 |
-64.1 |
-21.9 |
|
Pension Protection Fund (PPF) |
35.3 |
-31.6 |
3.7 |
|
Financial Services Compensation Scheme (FSCS) |
17.2 |
-17.2 |
Nil |
|
Pool Reinsurance Company |
5.7 |
-0.3 |
5.4 |
|
Homes and Communities Agency |
4.5 |
-0.5 |
4.0 |
|
NHS Property Services Limited |
4.0 |
-1.0 |
3.0 |
|
The Housing Finance Corporation Limited |
3.4 |
-3.4 |
Nil |
*Owns stakes in the four bailed-out banks
[SPOTLIGHT]It's worth noting that while UK Asset Resolution Limited and the Pension Protection Fund are sitting on significant net assets, the Student Loan Company currently has a massive shortfall of nearly £22 billion on its balance sheet. This is because its assets of just over £42 billion are easily overshadowed by huge liabilities exceeding £64 billion. In other words, more than a third of all student debts will never actually be repaid.
What's more, from 2015 to 2020, the Student Loan Company expects to issue £84.4 billion of new student loans. Over this same period, students will repay around £11.9 billion of past loans, while the Government expects to generate about £12 billion of proceeds from sales of the pre-2012 student loan book.
So student loans are set to become a major part of the state's balance sheet, with their total value set to exceed £100 billion by 2018.
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Looking ahead
The current Government plans more sales and disposals of these assets during this parliament. Between 2015 and 2020, the Government is set to receive around £94.6 billion from selling shares and selling or collecting loans it has issued. By 2020, cash proceeds from planned sales of shares, mortgage books and student loans are anticipated to reach £62.6 billion.
On the other hand, issuing new loans and other initiatives from 2015/16 to 2020/21 will total £94.8 billion. In effect, public borrowing will increase by £200 million.
Looking ahead, one big problem for this and future Governments is that no single area of Government takes a portfolio view of these many and varied institutions. This could lead to problems where one policy vehicle takes decisions that harm the interests of another state-supported financial institution.
In my opinion these kinds of conflicts are highly likely to arise with the next change of Government.
Big banks have much bigger balance sheets
While these figures seem enormous, it's worth remembering that they pale in comparison to the size of the balance sheets of the UK's biggest banks.
For the record, HSBC's total assets are around $2.67 trillion, Barclays has assets approaching £1.36 trillion, Royal Bank of Scotland's total assets exceed £1.05 trillion, and Lloyds Banking Group boasts assets worth £855 billion.
As a result, if and when the next financial crisis erupts, bank shareholders could lose a great deal more than the wider public.
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