Public debt exposure 'down £300bn'

The taxpayer's potential exposure to ailing banks has been cut by more than £300 billion as a result of Tuesday's shake-up, Chancellor Alistair Darling said.

This is accounted for by the £260 billion in toxic loans - mostly from HBOS - which Lloyds is no longer putting into the taxpayer-backed Asset Protection Scheme (APS).

Meanwhile Royal Bank of Scotland has also cut the risky assets it is placing into the APS by £42 billion from the original £325 billion announced in February.

The Chancellor had pencilled in a maximum £50 billion in losses - around 3.5% of the UK's entire annual economic output - on banking sector interventions in April's Budget.

But the Treasury expects to revise these figures downwards shortly in the Pre-Budget Report "subject to wider factors" - although its purchase of shares will add £13 billion to its cash needs this year.

The taxpayer is also nursing paper losses of £4.2 billion on its current £14.5 billion spent on shares in Lloyds, as well as £5.5 billion on the £20 billion pumped into RBS last year.

Now the Government will give an extra £25.5 billion in capital into RBS - although the taxpayer is also on the hook for an extra £8 billion if the bank needs it.

But the APS is now a much cheaper scheme for the bank - in effect "catastrophe insurance" in the words of the bank's directors - with RBS paying £700 million a year until 2011 instead of a £6.5 billion upfront fee.