In his annual Mansion House speech, Osborne said “decision time” had come in respect of the government’s 80 per cent shareholding in the bank – but acknowledged that he would likely incur a political hit for selling the bank for less than the cost of the bailout in 2008 (£45.2bn).

Claiming the decision to sell RBS was taken on the advice of Bank of England Governor Mark Carney, Osborne said “I’m not interested in what’s easy – I’m interested in what’s right.”

“I was not responsible for the bailout of RBS or the price paid then for shares bought by the taxpayer, but I am responsible for getting the best deal now for the taxpayer and doing whatever I can to support the British economy.

“There is no doubt that starting to sell the government’s stake in RBS is the right thing to do on both counts.”

Initially, shares will be ‘drip fed’ to institutional investors, but the Chancellor anticipates offering shares to the general public in due course. If all government-held shares in RBS were sold at current prices, the taxpayer would lose £7.2bn. The government would need to sell shares at prices approximately 20 per cent higher than they stand today to break even on the bailout.

Reactions to the announcement have been mixed. Laith Khalaf, senior analyst at Hargreaves Lansdown, welcomed the move on the basis that the general public will likely be able to buy in at a discount to market prices, or with bonus shares attached.

Graham Spooner, investment research analyst at The Share Centre, believes the sale is likely to be a difficult one, as the bank is still on the road to recovery and has reported seven years of losses since the bail out.

“We remain cautious on RBS and believe there are better opportunities for followers of the banking sector, such as HSBC which we currently recommend as a ‘buy’ for lower risk investors looking to achieve income,” he said.

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