Britain will start selling its £32 billion stake in Royal Bank of Scotland in the coming months, UK finance minister George Osborne said last night.
The announcement means that he is giving up on his previous intention to only sell the shares for a profit.
Mr Osborne said he had received independent advice from the Bank of England and from investment bank Rothschild that it was in the interests of UK taxpayers to start selling the shares in the bank.
"In the coming months we will begin to sell our stake in RBS. It's the right thing to do for British businesses and British taxpayers," Osborne said in an annual speech to financiers in the City of London.
Shares in the bank closed 1.9% higher at £3.61 following the news.
The announcement represents a milestone for Osborne, who is trying to move on from the aftermath of the financial crisis.
In the same speech, he said he will seek to bind future governments to his vision of permanent budget surpluses, something rarely achieved in modern Britain.
And Bank of England Governor Mark Carney, speaking at the same event, said "the age of irresponsibility is over" as Britain announced a clamp-down on abusive practices in financial markets after a string of scandals.
Rothschild said taxpayers were on course to lose more than £7 billion on the RBS rescue although they would make a profit from the full bailout plan which included other banks.
RBS is Britain's fourth-biggest bank by market value and owns Ulster Bank here.
It was saved from collapse by former prime minister Gordon Brown's Labour government during the 2007-09 financial crisis at a cost of £45.8 billion to UK taxpayers, leaving the government holding an 80% stake.
It also paid £20.5 billion to rescue Lloyds Banking Group.
"From bailing out the banks to bringing them back from the brink, now is the time for RBS to rebuild itself as a commercial bank no longer reliant on the state, but serving the working people of Britain," Osborne said.
Bank of England Governor Mark Carney backed the sale, saying in a letter to Osborne that it was in the public interest to return RBS to private ownership.
Carney said the move will "promote financial stability, a more competitive banking sector, and the interests of the wider economy" while avoiding "considerable net costs to taxpayers of further delaying the start of the sale".
Osborne said it will take "some years" to sell the entire stake.
Reuters reported last week that the government was planning an initial sale of RBS shares to financial institutions such as pension funds and insurers in September. Private retail investors are expected to be involved in later sales.
"With such a complex investment case, we have to start with institutions, but I see no reason why ordinary investors - in other words members of the public - should not take part in due course," Osborne said.
Bankers say there is significant interest from institutions willing to overlook ongoing issues relating to past misconduct at RBS and uncertainties over Britain's continued membership of the European Union.
The institutions, some of whom are based in the US, see the bank as a play on Britain's economic recovery.They are also attracted by RBS's modest valuation. The bank's market value is currently just 0.8 times that of its assets.
Rothschild said that by starting to sell its shares in RBS, the government will increase liquidity in the stock, making it more attractive to investors and sending a strong signal that RBS is on the road to recovery.
Chief executive Ross McEwan has overseen a turnaround at RBS since his appointment in 2013, returning the bank to profit inthe first quarter of this year.
Shares in RBS closed at 351 pence yesterday, well below the government's average buy-in price of 502 pence per share, and the first sale will almost certainly be at a loss.
"We may get a lower price than Labour paid for it. But the longer we wait, the higher the price the whole economy will pay. And when you take the banks in total, we're making sure taxpayers get back billions more than they were forced to pu tin," Osborne said.
Earlier this year, Osborne said he would need a lot of persuading to sell the shares at a loss. Since then, his Conservative Party scored an unexpectedly decisive British election victory.
Rothschild said taxpayers were set to make an overall profit of £14 billion from the government's bailouts of banks during the crisis, based on current share prices.
That includes a loss of £7.2 billion on RBS, after taking into account fees received from the bank, based on current share prices, and a £5.3 billion profit on Lloyds.
The British government said yesterday that it had sold a further 1%of Lloyds, reducing its stake to 17.9%.
The overall profit for taxpayers from the bank bailouts forecast by Rothschild also includes a £9.6 billion profit on assets previously held by nationalised lenders Northern Rock and Bradford & Bingley, and £6.6 billion paid back by bailed-out banks in fees.
