Lloyds Banking Group is set to become the first lender in Europe to return bailout money to the taxpayer. The repayment, expected to be in the region of £2.3 billion, is being made far sooner than either the City or the Government could have foreseen, and will help justify the billions of pounds of taxpayers’ money pumped into the banks in the past year. Under the initial terms of the bailout of Lloyds Banking Group, the Treasury spent £13 billion buying ordinary shares, and another £4 billion acquiring so-called preference shares, which gave the Government more rights over the bank. Taxpayers are likely to benefit as shareholders in Lloyds Banking Group supported a new rights issue.

Over the past few months, the bank has said that it wanted to raise £4 billion in new money to pay down some of its higher-interest debt. When the bank announced its intentions, Lloyds was forced to offer shareholders the right to buy new shares at their value then of about 38p. But since then, the stock market has rebounded on hopes that the worst of the recession might be over.

In October last year, the Treasury spent £17 billion taking a 43 per cent stake in Lloyds Banking Group to prevent it from going bust. The Government has always insisted that its long-term goal was to sell the banking shares it had acquired back to the private sector and to make a decent profit on its investment on behalf of the taxpayer in the process.

In January, Lloyds completed its takeover of HBOS, which was later branded "a disaster" at Lloyds' annual meeting, accelerating a move by chairman Sir Victor Blank to stand down.