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By Mark Wallace
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OsborneAccording to the Chancellor's Mansion House speech, the Lloyds sell-off could start within a few months – with the prospect of a sale of shares to the public following the initial tranche being sold to institutional investors.

There had been calls for all of the shares to be given away to the people in thanks for the huge amounts taxpayers paid for the bank bailout, or for a purely market-focused sale. Instead, George Osborne has sought to strike a compromise between the two.

The rationale for a giveaway was obvious – a rare thank you to taxpayers and a handy pre-election contrast with Labour, who spent their last two years in power passing cash the other way. But it risked being too obvious a bid for votes in return for a freeby.

On balance, Osborne has chosen a more pragmatic route – proposing an approach which seeks to get as much money back from the initial investment as possible, leaving the banks with fundraising access to large investors and still giving the public a "Tell Sid" option of taking up a stake. Better to do the sensible thing and use the money to battle the deficit than to do a stunt that costs yet more money (though I suspect Ed Balls is being extremely premature in predicting the taxpayer will make a profit on the bailout).

RBS' fate is set to be more protracted. The bank is still in a bad state – Stephen Hester warned last week that it could be ten years before it was back in private hands and last night the Chancellor restated that it is still carrying bad debts.

He gave the biggest hint yet that he has listened to Sir Mervyn (soon to be Lord) King's suggestion that the bank should be split up, becoming a good and bad bank, saying the option will be considered in the Autumn.

The risk involved, as Laura Kuenssberg said last night, is that to do so might require yet more taxpayers' money, not less. The state could be forced to buy out the remaining shareholders before it can start carving the institution up. For the same reason a share giveaway might seem attractive, the prospect of a further bailout would be devastating. The Treasury says if a prospect emerges of a single penny more going in, the break-up option would be off the table.

Starting to get money back from Lloyds is good news – but the Chancellor would be well advised to avoid like the plague the risk of putting any more money into RBS.

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