Chancellor To Announce £16bn B&B Sell-Off

George Osborne will announce next week that he is firing the starting gun on a £16bn sale of rescued bank assets as he confronts a damaging shortfall in tax receipts.

Sky News can reveal that the Chancellor has decided to include the projected sale of the remnants of Bradford & Bingley (B&B) in his Budget on Wednesday after weeks of discussions among Treasury officials.

The decision could help to alleviate the impact of lower-than-expected revenues from the sale of shares in other taxpayer-backed lenders, such as Royal Bank of Scotland (RBS), from which Mr Osborne had hoped to generate almost £6bn in the next financial year.

The Chancellor is also facing what some reports described this weekend as an £18bn hole in the public finances, which is likely to mean additional public spending cuts during the rest of this parliament.

The timing of the B&B auction is unclear, with some sources suggesting that it may not conclude for many months as investors continue to digest an earlier £13bn asset sale involving the former Northern Rock late last year.

Sky News revealed earlier this month that the UK's biggest high street banks were drawing up plans to help ministers offload the remnants of B&B as the lenders seek to ditch hundreds of millions of pounds in annual interest payments.

The consortium, which includes Barclays, HSBC, and the state-backed Lloyds Banking Group, has submitted a proposal to the Treasury under which it would guarantee around £16bn of financing to purchasers of the B&B loans.

They plan to establish a special purpose vehicle, which would house the loans ahead of a possible sale to external investors.

The group of banks, along with Nationwide, the UK's biggest building society, wants to help remove the B&B portfolio from the Government's balance sheet because they are liable for the interest on the loan that was used to fund it during the 2008 financial crisis.

The six institutions service the loan through a Financial Services Compensation Scheme levy, with the B&B interest last year alone totalling £400m.

Their plan would involve repaying the outstanding borrowings prior to a sale.

An industry source said this month that the plan would benefit the Government as well as the banks, because it would accelerate the removal of the B&B loans from the state's balance sheet.

Depending upon the price it attracts, an auction of the B&B loan-book could trump the £13bn disposal of Northern Rock mortgages.

Mr Osborne announced in December's Autumn Statement that the Government would seek to offload a further £7.5bn of assets held in UK Asset Resolution (UKAR), the vehicle established as the parent of Northern Rock's so-called 'bad bank' and B&B.

However, that £7.5bn portfolio - which comprises several tranches of loans, according to people close to UKAR - is separate to the £16bn chunk of B&B on which advisers are now lining up to be appointed.

Mr Osborne hailed the November deal as "another major milestone in clearing up the mess left by the financial crisis", but has since been forced to delay a £2bn retail offering of Lloyds Banking Group shares, citing market volatility.

Further disposals of RBS shares, which are trading well below the level at which taxpayers would break even, are viewed as unlikely for several months at least.

B&B was bailed out by the Labour government in September 2008, with Santander UK buying its retail deposit business and branches, and the bank's remaining assets taken into public ownership.

A Treasury spokesman declined to comment on Saturday.