THE SUCCESSFUL sale of 6 per cent of Lloyds to institutional shareholders was a crucial first step in returning the bank to full private ownership. That the government has been able to obtain a price above the initial purchase price – and well above the price in the national accounts – is particularly positive. Indeed, the Treasury will be able to reduce the national debt by around £600m as a result of the sale.
But we need to go further. Earlier this summer, we urged the government to push ahead with the full privatisation of the banks, arguing that both RBS and Lloyds should ideally be sold before the general election. Any sale of RBS has undoubtedly been delayed, after the decision to examine the option of a good bank/bad bank split. But there is no reason why Lloyds should not be fully privatised sooner rather than later.
George Osborne has said that the next step would be to look at a sale to retail investors. We believe it’s important that any such sale should be as broad as possible, allowing taxpayers (who currently own a significant part of the bank) to be able to retain their share of the upside in Lloyds. That way, at least, the government cannot be accused of selling out on the cheap if the share price does rise to the 100p targeted by some brokers.
And the best way of achieving such a sale is via a mass distribution of shares to taxpayers. Such a scheme would allow taxpayers to apply for shares and repay the government at the point of sale – rather than on application. They would not have to pay any money up-front, and this should encourage much greater participation. If the Treasury were to sell its entire remaining stake in this way, and if 25m taxpayers applied, it would represent around £700 worth of shares each. That is similar to the amount of shares being offered to retail investors in the Royal Mail privatisation. The main difference is that purchasing part of Royal Mail requires payment up-front, which is already said to be likely to limit the number of applicants.
While it might be argued that this scheme is more complicated than a traditional retail offering, and would likely force the Treasury to wait for the proceeds of the sale, we do not believe these are real obstacles. First, in the world of the internet, large numbers of participants are not particularly frightening for such offers (think the London Olympics). Secondly, because the shares would all be placed at once and taxpayers would likely start to sell into any rise in the price, the Treasury should receive a steady flow of receipts. Indeed, our scheme would probably support the share price in the aftermarket, as institutional shareholders that wanted to buy any further shares would have to bid them away from individual shareholders.
Taxpayers have supported the banks for five years. Surely as many as possible should be allowed to participate in the next step of the process. Over to you chancellor.
James Barty is head of financial policy at Policy Exchange. @PXFinance.