British govt to manage bailed-out banks at 'arm's length'

The British government will manage taxpayers' multi-billion-pound stakes in some of the country's biggest banks on an “arms length” basis rather than through direct boardroom control, it was revealed today.

Ministers originally signalled that were planning to appoint directors to the boards of the banks taking part in the £37bn (€43.2) rescue package, which include Royal Bank of Scotland, Lloyds TSB and HBOS.

But the men heading up the company set up to oversee the historic scheme said their job was to “manage the taxpayer’s investments, not to manage the banks”.

Respected City veteran Sir Philip Hampton and John Kingman, a senior treasury official, will be chairman and chief executive respectively of UK Financial Investments (UKFI). The venture will be fully operational next month.

In an article published in the Financial Times that details UKFI’s remit, the pair said their over-arching objective was to “protect and create value for the taxpayer” and that the company will operate on a “commercial basis at arm’s length”.

They said UKFI was to employ a “small number of able people with high-grade financial skills”.

The company will be involved in the appointment of directors at the banks, but the people concerned “will not be our representatives and will not report directly to us”, they said.

Board members at the bailed-out banks can also expect to see their pay packets come under close scrutiny.

The taxpayer-funded cash injections designed to help shore up the firms were unveiled last month as Britain's banking system wobbled during the financial crisis.