Bank bail-out 'could send national debt soaring by £1.5trillion'

Office for National Statistics says Lloyds Banking Group and Royal Bank of Scotland should be treated as public companies

The offices of the Lloyds Banking Group in Gresham Street, London. Photograph: Dominic Lipinski/PA

The government's rescue of some of Britain's biggest banks will push up the national debt by as much as £1.5trillion, the Office for National Statistics (ONS) announced this morning.

Alongside a grim assessment of the public finances, the ONS said that Lloyds Banking Group and Royal Bank of Scotland should be treated as public companies as they are now partly under the control of the state.

It said it would take time to assess exactly how much damage this would do to the public sector net debt, but estimated that it would push it up by £1tn-1.5tn. The upper estimate is twice the current national debt, and equivalent to about 100% of GDP.

The ONS said it had taken the decision "based on a judgement that government has the ability to control the respective banks' general corporate policy through the conditions associated with the agreements signed relating to recapitalisation".

The statistics office reported that public net debt had hit a record 47.8% of GDP. The Treasury injected billions of pounds into the banks to save them from collapse. Lloyds, which recently took control of HBOS in a rescue merger, has received £17bn and is 43% owned by the taxpayer.

The government has also taken control of Northern Rock and Bradford & Bingley, and owns more than 70% of RBS.

The figures showed government finances worsened dramatically last month, usually a strong month when City bonuses and corporation tax receipts swell the national purse.

Public sector net borrowing, the government's preferred measure, recorded a surplus of £3.34bn, the lowest January surplus since 1995.

Howard Archer of IHS Global Insight called the January figures "terrible".

"January always sees a surplus on the public finances at is a bumper month for tax receipts. Unfortunately, though, bumper hardly describes the tax receipts for this January as they have been decimated by sharply contracting economic activity, declining profitability, rising unemployment, reduced bonus payments, December's VAT cut and substantially weakened housing market activity and prices," Archer said.