The government needs to decide if it should interfere in the running of Royal Bank of Scotland and accept that, if it does, taxpayers will not get back as much of their value in the bank, a leading politician said on Friday.

The government has promised not to interfere in the commercial running of RBS, 82 percent owned by taxpayers, but recent rows over lending and pay for executives have raised fears it is instead getting more involved.

Andrew Tyrie, one of the most influential MPs on banking issues, said the issue must be sorted out quickly.

All of us -- and that includes the government, Parliament and British taxpayers -- need to decide whether we want to run RBS as a fully commercial bank at arm's length from frequent intervention, or whether we want it to be a bank on which we make special demands, said Tyrie, chairman of the Treasury Select Committee of British lawmakers.

Were we to make special demands, we would have to accept that it (the government's stake) would not sell for as much, or as quickly, said Tyrie in a statement.

RBS on Thursday reported a 2 billion pound loss for last year and its Chief Executive Stephen Hester warned that political interference risked turning RBS into a latter-day version of British Leyland, the failed 1970s carmaker.

Tyrie said: It is pretty clear that the board of RBS are worried about this. This needs sorting out.

Several leading investors have told Reuters they are concerned about increased politicisation at the bank, and there is a risk Hester is acting too much like a civil servant rather than a private-sector bank executive.

Taxpayers are sitting on a 20 billion pound paper loss on their 45.5 billion pound rescue of RBS, after bailing it out in 2008 to save it from collapse.

(Reporting by Steve Slater; Editing by David Holmes)