DEBATE: RBS is back in profit: Should the government sell more of its stake?
The government should sell the rest of its stake in RBS as soon as possible. Supporters of nationalisation will always want the state to own shares in businesses, and will happily change their argument depending on circumstance. If the price goes up, they will call it a good return for taxpayers, and when it goes down they will say the government shouldn’t crystallise losses.
The previous chancellor was attacked for his sale of £2.1bn of shares two years ago, but since then the share price has fallen by more than 25 per cent.
The government has no business playing the stock market with taxpayers’ money. RBS shares were not bought as an investment, but as an emergency bailout.
If politicians want to invest in shares, they should do so with their own money. The best place for RBS is back in the private sector, where it can compete and improve against other banks, and the taxpayer can be free of the associated risks.
The government should look to maximise the return on its investment in RBS, irrespective of the reasons it initially invested in the bank. At present, selling the shares would result in a huge loss on the investment and makes little sense.
For the first time in years, the bank has made a profit, largely driven by falls in compensation and litigation costs. The chief executive is making progress in resolving the legacy issues that have weighed on the bank and there is still much more work to be done to bring the business back to full health.
In spite of the improved outlook, the share price has been languishing and is nowhere near the highs it has seen since the financial crisis. The government can – and should – take a longer term view to its investments and extract better returns.
The country needs strong finances, but while borrowing is so cheap there would be little to gain from cashing in the investment to bring down the deficit.