The repayment by Lloyds to the Treasury is directly due to the rally in markets since March. It has let Lloyds raise £4 billion from investors in a rights issue, including £1.7 billion from the Treasury itself, enabling it to buy back £4 billion worth of preference shares from the latter. As interest on these debts cost Lloyds £480 million annually, it was in its interests to repay them urgently.

The fundraising also means that, in buying back the preference shares issued to the Treasury, Lloyds may again pay dividends, something UK Financial Investments (UKFI) — with its 43 per cent stake — should welcome.

However, as taxpayers have spent £17 billion recapitalising Lloyds, a further £14.7 billion is still to be repaid. How quickly this happens depends on how Lloyds shares recover and how UKFI — which runs Treasury investments in Lloyds, RBS and others — views the sector’s prospects.

If things improve rapidly, UKFI will be tempted to take profits, as Barclays’ Abu Dhabi-based investors did last week. But, longer-term, it may choose to hang on in the hope of greater riches. It seeks to profit from its stakes — not just break even. It is certainly not unreasonable to hope that Lloyds shares may now rise further — as its new-found ability to pay dividends may make it more attractive to investors. Lloyds shares have more than doubled since early March — but those of Barclays, which was never barred from paying dividends, have quintupled.

The bigger question is how the total sums used to prop up the sector can be repaid. The Treasury is potentially on the hook for a far bigger sum due to the Asset Protection Scheme, launched in January, in which taxpayers agreed to underwrite loans the banks fear may be at risk of default — and into which Lloyds and RBS have respectively dumped £260 billion and £325 billion of potentially toxic loans. The Treasury may never get all its money back on some of these loans.

Meanwhile, watch for developments at Northern Rock, which UKFI is eyeing as its next potential money-spinner.

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