Four City investment banks have charged the Treasury at least £9 million in fees for advising the Government on how to stop the financial system from imploding, The Times has learnt.

In addition, UK Financial Investments (UKFI), the body set up to handle the Government’s bailed-out bank shares, spent £1.2 million of taxpayers’ money in the first five months of operation. It is believed that most of the money was spent on salaries for the handful of officials who operate UKFI, which is designed to be at arm’s length from the Government. UKFI is understood to have low costs outside salaries partly because it uses rooms within the Treasury as its headquarters.

The Treasury hired a swath of investment bankers for advice on how to stabilise the financial system and avert the collapse of more lenders. It also sought advice on how to help investment banks purge themselves of billions of pounds worth of bad debt on their balanace sheets.

Lord Oakeshott of Seagrove Bay, the Liberal Democrat Treasury spokesman, told The Times: “Taxpayers are paying through the nose for Treasury officials’ ignorance of how the City works. From my experience of dealing with them on the nationalisation of Northern Rock, it’s matched only by the arrogance.”

The peer added: “Because the Treasury has no core expertise, it has been running in desperation to the City who are not able to give proper independent advice. Many of these investment banks were on the one hand creating the toxic investments which made the crisis much worse and on the other taking fees to get us out of it.”

During the financial year 2008-09, Citigroup, Credit Suisse, and Morgan Stanley charged the Treasury £1.922 million, £5.502 million and £1.501 million respectively. Deutsche Bank also seconded 41 staff to the Treasury but it is not yet known how much they charged.

While one senior banking source said that investment banks usually charge the Government lower fees than commercial clients in the hope of future contracts, he pointed out that the banks may have charged fees for additional tranches of work on top of the “financial stability-related” projects listed by the Treasury.

A spokesman for the Treasury said that certain fees are recoverable and that the Government is examining ways of setting off some of the costs by charging the banks that benefited from the advice. Concerning the operational costs of UKFI, the Treasury said that “the management fee will depend on agreement of the business plan, but is expected to be single-figure millions annually.”

John Kingman, the Treasury mandarin, has been seconded to run the agency. UKFI was created to house the State’s shareholdings in Britain’s bailed-out banks and to ensure that taxpayers receive a decent return on their investment once the lenders are sold back to the private sector.

In March, UKFI told the Commons Treasury Select Committee that it operates from a small room in a Treasury building with no more than a dozen employees. Glen Moreno, UKFI’s acting chairman, who is also the chairman of Pearson, the media business, said: “This company operates in a room smaller than a bank chief executive’s office. Its chief executive makes less — if the press is to believed — than John Thain’s [former chairman of investment bank Merrill Lynch] chauffeur did last year.”

Responding to criticisms of bonuses at UKFI, Mr Kingman said that the total bonus pool would be a maximum of 20 per cent of its remuneration bill, far lower than bonus sums paid by banks.

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