UK Financial Instruments (UKFI), the body that manages the Government’s shares in some of Britain’s biggest banks, today admitted that it is sitting on paper losses of £10.9 billion.

The body, which is in charge of the Government’s 70 per cent stake in Royal Bank of Scotland and its 43 per cent holding in Lloyds Banking Group, also refused to give an indication of when it expected to dispose of the shares in the lenders.

The UKFI said today that every household in the country has more than £3,000 invested in Lloyds and RBS shares. It said: "Our own task of returning these investments to the private sector is challenging.

“The amounts involved are very large, and a successful disposal of our holdings will require professionalism and patience.”

The Government sank £20 billion in taxpayers' money into RBS but the stake is now worth just £15.3 billion. Lloyds, which owns HBOS, received £14.5 billion in state-funding but the holding is now valued at £8.3 billion.

The losses in the banks is less than the £18.1 billion shortfall revealed in February.

UKFI’s report makes clear that it could be years before RBS and Scotland are back in private ownership, although the ultimate decision on any disposal will be the taken by the Treasury.

It adds that the most likely exit for the Government will be through an initial public offering of the stakes.

“While there are many possible approaches open to us, including strategic sales, our central assumption in thinking about our disposal programme is that we are likely to be selling shares to investors in the public equity markets,” said the Government body this morning.

The Government’s stakes in RBS and Lloyds will increase when the Treasury’s insurance scheme – the Asset Protection Scheme – kicks in. At that stage, taxpayers will probably own more than 80 per cent of RBS and more than 60 per cent of Lloyds.

UKFI also gives further detail about its individual strategies for RBS and Lloyds.

The Government body wants RBS to push ahead with the disposal of non-core assets, which will bring in some revenues for the taxpayer.

“We are very supportive of this initiative [RBS’ plan for disposals] whilst not wanting the bank to initiate the disposals on terms that would destroy value for shareholders.”

UKFI said it was supported RBS’ decision to pull a planned sale of its insurance division earlier this year.

On Lloyds, the UKFI hinted that it will not stand in the way of job losses at the bank.

“Our agenda for Lloyds Banking Group is primarily concerned with the integration of HBOS, both from an operational and a cultural standpoint,” it said. “We are very focused on the metrics related to the progress on merger integration and expectations of value creation for shareholders.”

UKFI does not mention any opposition to the politically sensitive job losses that are widely expected as a result of the integration of the two banks.

The Government body’s remuneration report reveals the salaries paid to UKFI’s eleven staff are relatively modest. John Kingman, chief executive, is the highest paid employee, earning £143,000 a year. Chairman Glen Moreno is working for free.

UKFI stresses throughout the document that it will manage the stakes at an arms length basis, with minimal interference in the businesses.

Mr Moreno said: "We believe that value will be re-established in the banks themselves, under the leadership of their own management and boards.

“Our role as shareholder is nevertheless to ensure that the banks have sound long-term strategies, and that they are effectively managed and properly governed.”

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