Q&A: Why is George Osborne selling off shares in RBS?

Is it a good idea to make a £1 billion loss?

Updated: 

Exterior of an RBS building

The Government has begun selling off its stake in Royal Bank of Scotland, the bank it rescued in the middle of the financial crisis. The first tranche of shares raised £2.1 billion for Treasury coffers, but because the shares were purchased at a far higher price, it means the taxpayer is actually £1 billion worse off overall.

What exactly has been announced?

The Treasury said it has sold 5.4% of RBS, reducing its stake from 78.3% to 72.9%.

It sold the shares at 330p, raising a total of £2.1 billion. Chancellor George Osborne said the funds would be used to pay down Britain's national debt, and added: "This is an important first step in returning the bank to private ownership."

How much did the Government buy the shares for?

Roughly 500p. It means the taxpayer lost about 170p per share sold, or more than £1 billion in total.

Worryingly, an earlier report by investment bank Rothschild estimated that taxpayers could lose around £7 billion if the total stake was sold at current share prices – and some analysts have put that figure as high as £15 billion.

Surely the Chancellor has been slated for selling at a loss?George Osborne

Yes, critics have been lining up to question the sale, with Labour front of the queue, hitting out at what it believes is a rushed fire-sale.

Many have queried Mr Osborne's timing. Indeed, had he sold just six months earlier, the shares would have been worth up to 400p.

How has the Chancellor defended the sale?

Osborne has insisted selling the bank is "the right thing to do" for the taxpayer, adding it would benefit the wider economy.

It is also worth keeping in mind the context of this particular investment. When the Government pumped £45 billion into RBS, it was hoping to shore up the bank and limit damage to the wider economy, not make a huge profit.

Why not simply hold on to the shares until they make a profit?

The first point to mention is that future sales – remember the Government still has a 73% stake – are expected to garner a higher price.

UK Financial Investments, the body that holds the Government's RBS stake, estimates that the share price will rise as the firm returns to health and more stock is sold to the market.

Many stock market experts also believe that shares would likely languish below the price paid by the Government for many years and agree it is better to free up taxpayer cash and put it to better use.

What banknotes would look like if kids designed them

What banknotes would look like if kids designed them


More on AOL Money:

RBS to be sold for £7.2bn loss​

RBS says cyber attack behind online banking failure​

Watch: Will the RBS sell-off be worth it?​

RBS Chief Welcomes Government Share Sell-Off