Page last updated at 18:19 GMT, Saturday, 7 March 2009

Lloyds control 'to boost lending'

Mr Osborne wants to see value for money

The deal giving taxpayers a 65% controlling share of Lloyds Banking Group is a "vital step" to get banks lending more, the chancellor has said.

The increased share, up from 43%, would help restore confidence and help the flow of credit, Alistair Darling said.

But opposition parties questioned the deal, which will also see taxpayers insure 260bn ($367bn) of toxic loans.

Shadow chancellor George Osborne said taxpaxers would remain sceptical until they saw lending start to flow again.

The government has said new lending from Lloyds will jump to 28bn over the next two years - eclipsing similar figures from government-owned Northern Rock and RBS.

The group had to turn to the government for help following its takeover of HBOS, which recently reported an annual loss of nearly 11bn.

'Sceptical'

THE TOXIC ASSET BREAKDOWN
83% of the 260bn toxic assets came from HBOS
17% come from the books of Lloyds TSB
Of the toxic assets, 151bn are in corporate and commercial loans
74bn comes from residential mortgages
18bn in unsecured personal loans
Mr Darling said the deal was a vital step in giving banks the confidence to increase their lending.

"Lloyds' commitment to lend an additional 14bn this year, on top of the 25bn committed by RBS, gets to the heart of the problems we face... by easing the flow of credit," he said.

"Restoring our banks to full health and ensuring they are able to support creditworthy families and businesses is an essential part of any plan for recovery."

Of the 14bn in lending this year, 11bn will go to companies and 3bn on mortgages.

No way out

Mr Osborne said the bank must now help revive the economy.

He told the BBC: "The real question is, are we going to get value for money?

"Because Britain has now spent more on bailing out its banks than any other country in the world, given our size, and we've got precious little to show for it.

"So I think the taxpayer is going to be sceptical until they actually see lending flowing in our economy again."

Liberal Democrat Treasury spokesman Vince Cable agreed, telling the BBC: "The government can't now just sit back as it has with the other banks that it's taken over and just watch them - it has to make sure that they are run in the national interest."

He added: "It has taken an awfully long time to get to a sensible decision. It must be right that when so much taxpayers' money is being used to save this bank that there is effective public control."

We've had good, grown-up conversations with the government
Lloyd's spokesman Shane O'Riordain

Lloyds' chief executive Eric Daniels has been criticised by shareholders for pushing through the merger with HBOS in January, despite big holes in its balance sheet. The government supported the deal.

The Lloyds boss said the latest deal was "appropriate".

"Our significantly enhanced capital position will ensure the group can weather the severest of economic downturns and emerge strongly when the economy recovers," he said.

BBC business correspondent Joe Lynam said: "[The government] is absolutely imposing its writ on the banks that it now controls.

"It is saying we will impose political decision-making on a bank, rather than just commercial or financial decision-making.

"This is the last throw of the dice before full nationalisation of Lloyds and RBS."

The 260bn insurance deal is part of the Treasury's taxpayer-backed Asset Protection Scheme to insure banks' riskiest assets against further losses.

The scheme was put forward by Mr Darling to try to restore confidence in the banking sector.

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