Why now? That's the question they were asking in the City and at Westminster as the UK government booked a £1 billion loss on the sale of the first tranche of shares in bailed-out Royal Bank of Scotland.

The disposal of £2.1 billion of shares in RBS, seven years after it was rescued with £45 billion of taxpayers' money, marks the start of what will ultimately be Britain's biggest ever privatisation.

It’s also a key part of a huge sell-off programme that will dwarf even the massive sales of national assets (or, depending on your political viewpoint, “the family silver”) presided over by the Thatcher government in the 1980s and 1990s.

But the RBS sale was nothing like the triumphant privatisations of past decades. The 5.4 per cent stake in RBS was bought by City investors, largely hedge funds, at 330p a share. This is way short of the average cost of 502p a share paid by the government when the bank was bailed out at the height of the financial crisis.

It takes the government’s stake in the bank down from just over 78 per cent to just under 73 per cent – if the entire shareholding had been sold at the same price, the loss would have been a whopping £15 billion.

So why sell now, when RBS shares are languishing at virtually their lowest level this year? Why not back in February, when the price was over 400p a share? Or why not wait until the price recovers to nearer 500p a share?

Criticism

The person best-placed to answer that was chancellor

George Osborne

himself.

However, despite the usual activity on his Twitter account – “RBS bailed out by last gov. This gov is selling it back. Bank of England governor says selling now is in ‘interests of the wider economy’ – the chancellor was nowhere to be seen yesterday and the Treasury was coy on his whereabouts.

It’s quite likely that Osborne was on holiday, as many MPs are at this time of year, and his advisers probably thought that would play badly in the light of the £1 billion loss.

There was certainly plenty of criticism, with Osborne accused by the opposition Labour Party of a “cavalier” attitude towards taxpayers’ money.

"RBS had to be bailed out urgently but it doesn't have to be sold off at the same speed," said shadow chancellor Chris Leslie.

Banking analyst Ian Gordon of Investec declared himself "perplexed" by the timing of the sale, while Brenda Kelly of London Capital likened the move to former Labour chancellor Gordon Brown's sale of a large chunk of Britain's gold reserves 15 years ago – just before the price of the precious metal rocketed.

In his tweet on the sale yesterday, Osborne cited the view of the Bank of England governor that starting returning RBS to the market was in the interests of the wider economy.

It’s also in the interests of the bank, which has suffered from having the state sit on such a huge stake – unlike Lloyds Banking Group, where the government sell-off has been under way for two years now, with the state holding reduced to less than 14 per cent.

RBS and Lloyds are two very different banks, however. Once the world’s biggest bank in terms of assets, RBS, now half the size it was in 2008, has struggled to return to financial health, only recently returning to the black.

It has paid out billions in fines and compensation for misconduct and still faces hefty penalties from US authorities for mis-selling in the sub-prime mortgage market.

Lloyds is profitable and has resumed dividend payments, and the government has made a decent profit for the taxpayer on its series of share sales.

With RBS, which will not resume dividends to shareholders until 2017 at the earliest, it’s quite possible the taxpayer will never see a return on its investment.

Incalculable

To a certain extent, that’s beside the point: the Labour government had little choice seven years ago when it poured taxpayer money into the bank to save it from collapse.

The cost to the economy had it not done so is incalculable.

Osborne is understandably tired of sitting on shares that are going nowhere.

He wants RBS off the government’s books and, in the long run, that should benefit the share price.

However, the process will take years, and the chancellor will be hoping he does not have to suffer a £1 billion loss on every tranche of RBS shares he offloads. Fiona Walsh is business editor of theguardian.com