Taxpayers hit amid banks break-up

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.