Royal Bank of Scotland may need more taxpayer funds to nurse the state-controlled lender back to health, Alistair Darling said yesterday hours after announcing a £33.5 billion bailout package for the bank — the biggest of its kind in the world.

Unveiling details of increased bailout funds for RBS and Lloyds Banking Group, the Chancellor told MPs that RBS “may need more capital” in order to help the bank to return to stability.

The Treasury said that it would inject a further £25.5 billion of taxpayers’ funds into RBS to prop up the lender, along with a new £8 billion pot of reserves intended for emergencies only. Mr Darling also announced a new capital injection of £5.7 billion for Lloyds, in which the Government holds a 43 per cent stake. The total bailout for the two banks now stands at £76 billion, the equivalent of almost 17p in the pound for every taxpayer.

George Osborne, the Shadow Chancellor, said: “They [the Government] went around boasting that they had saved the world, and they are still trying to save the British banks and they haven’t got on to saving the British economy.” He added that the extra financial help for RBS represented a “new world record” as the single biggest bailout.

In the City, shares in Lloyds jumped 3 per cent to 87.33p as traders interpreted its smaller capital injection and intention to withdraw from the Asset Protection Scheme as a sign that it was on the road to recovery and that the Government could even begin selling its stake back to the private sector. By contrast, RBS shares sank 7 per cent to 35.93p after traders saw the fresh injection and extra reserves as a sign it remains troubled. Yesterday’s additional taxpayer assistance for RBS in effect raises the Government’s stake in the bank to 84 per cent.

Lord Myners, the City Minister, said the revised plans for both banks were an improvement on the original drafts: “There is far greater burden-sharing with the private sector.”

While the Treasury insisted Mr Darling’s comments on RBS’s potential need for more bailout funds referred to the £8 billion contingency reserves, they were interpreted differently by both opposition parties. Conservative and Liberal Democrat MPs saw his remarks as a warning that the Treasury had not ruled out having to pump even more taxpayer funds into RBS.

Gordon Brown is desperate to return Northern Rock to the private sector before next year’s general election because he wants to be able to show voters that Labour’s rescue strategy for the banking crisis has paid off. The Prime Minister is anxious that, if the Conservatives win, they will not be able to take all the credit for selling the state-owned banks back to the private sector at a profit for the taxpayer.

Mr Darling also announced RBS’s plans to offload about 10 per cent of its assets and curb bonuses.

Under the deal, done to appease European competition regulators, the bank is selling RBS-branded branches in England and Wales, its NatWest branches in Scotland, the Churchill and Direct Line insurance arm and parts of its investment banking business. Lloyds will also offload its Lloyds branches in Scotland, its Cheltenham & Gloucester branches and the Intelligent Finance online business.

On the rocks? Pages 56, 57

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