The Government will today announce plans to inject a further £40 billion of taxpayers’ money into Royal Bank of Scotland and Lloyds Banking Group as part of a fresh, wide-ranging restructuring of the UK banking sector.

The sum is higher than expected because RBS will take about £25 billion in new “B” shares and £9 billion in contingent capital that can be converted into loss-absorbing equity if the bank’s finances deteriorate further.

The injection of “B” shares will increase the Government’s economic stake from 70 per cent to 84 per cent but its voting rights are capped at 75 per cent. The bank hopes it will not have to draw on the contingent capital.

The Government will also plough about £5.8 billion into Lloyds, which is 43 per cent taxpayer owned, as part of a £13.5 billion rights issue to escape the Government’s giant insurance scheme for toxic assets. Lloyds will also raise £7.5 billion from swapping debt into contingent capital.

A long-awaited Treasury statement will give details of the assets both banks have been told by the European Commission to sell as a penalty for the billions of pounds of state aid they have received.

RBS’s insurance arm — Direct Line, Churchill and Green Flag — will be put up for sale. Some 312 branches, mainly in England and Wales, will be packaged up for a sale.

The bank has also been told that it must cap parts of its profitable investment banking empire so that it can reach no higher than number five in league tables.

RBS has successfully resisted pressure from Europe to sacrifice Citizens, its US business.

The Treasury and RBS will also give details of the revised terms of the bank’s participation in the Government’s asset protection scheme (APS).

RBS is putting about £270 billion of assets into the APS, down from the £325 billion originally planned. The fee will change from an upfront payment of about £16 billion to a pay-as-you-go arrangement of between £500 million and £1 billion a year, giving RBS the flexibility to exit the APS early if the quality of its assets were to improve.

Should RBS leave the APS after just one year, it would have to pay a £2.5 billion break fee — the same amount that Lloyds will have to pay not to use the scheme.

RBS will have to pay £40 billion as a first loss on the assets — similar to an excess on a regular insurance policy — up from the £19.5 billion estimated by the bank in February.

Lloyds will get the final go-ahead to ditch the APS and instead raise more than £20 billion in the market.

Underwriting fees for investment bankers on the capital raising are more than £400 million. The Government will sub-underwrite its portion of the capital raising and collect a fee for doing so.

Lloyds must sell its TSB network in Scotland, with 200 branches, its Cheltenham & Gloucester business and its internet bank, Intelligent Finance. Both RBS and Lloyds will be given several years to complete the sales.

Meanwhile, Royal Bank of Scotland announced a further 3,700 job cuts. RBS has already cut one in ten employees, or 16,000 people, since the start of the financial crisis. The bank informed the affected staff in its branch network yesterday afternoon of the new cuts, which will be imposed over the next two years.

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