EVERY so often, an opportunity comes along to spread ownership and to build a society where the many, not just the few, own a stake in society. The forthcoming reprivatisation of Lloyds Banking Group and eventually of RBS is one such moment.
Let us hope, therefore, that George Osborne chooses to adopt a plan out today from Policy Exchange, an influential think-tank: it wants taxpayers to be offered a no risk stake in RBS and Lloyds. Under the proposal –by former Deutsche Bank exec James Barty – up to £34bn of the government’s £48bn of shares in RBS and Lloyds would end up in taxpayer hands.
Every British resident over the age of 18 who has a national insurance number and is on the electoral register could apply for shares worth as much as £1,650.
Barty wants 55 per cent of RBS’s equity and 30 per cent of Lloyds’ to be distributed in this way. There would be no initial cost, but the shares would be paid for when they are eventually sold on by the lucky recipients. There would be a floor price: the stock would be worth nothing below it but would become profitable above it. There would therefore be no downside for recipients of the shares but the possibility of a huge upside if the banks begin to do well.
If everything were to go badly wrong and the share price were never to exceed the floor price, the shares would be returned to government ownership after 10 years; this would incentivise the public to want the privatised banks to do well, and align the electorate’s interests with that of the newly privatised banks.
Suddenly, banker-bashing would become a potentially expensive exercise, and new rules that would damage RBS or Lloyds – for example, the absurd idea that bonuses should be deferred for ten years, an underhand way of effectively banning them, reducing incentives and robbing firms of a key way of varying compensation – would no longer look as attractive.
At the same time as the mass distribution – the best way to describe the policy, as it isn’t a full giveaway – the remaining quarter of the shares could be sold in the usual way. The Treasury would probably raise £17-18bn through institutional and retail sales, Policy Exchange estimates; Osborne would begin to recoup the rest of his money when the share price of the banks rises above the floor price, which presumably would be the break-even price at which the government originally purchased its stakes.
A key advantage of this policy is that it would allow the banks to be privatised in one go at a better price – given the size of the firms, a full sale done the traditional way would require crippling discounts.
A staged sale to institutions would take years, and wouldn’t be finished before the election, obviously a major problem for the government – and it too would require a discount, albeit a smaller one. A genuine share giveaway – whereby the entirety of the government’s stakes were given away to taxpayers – would increase the national debt by approximately £50bn; the share price would also be severely depressed as millions would seek to sell their stock immediately.
The real reason why the government should go with the Policy Exchange plan – itself a follow-up of another document produced a couple of years’ ago for the Centre for Policy Studies by Portman Capital – is the cultural shift it would engender. Too many people have fallen out of love with the market economy; even more have fallen out of love with finance and the capital markets. It is therefore vital to reignite the kind of popular capitalism last seen in the 1990s in Britain, to ensure that direct share ownership is no longer the preserve of an elite, and to reconcile the public with the City.
This plan would tick all three boxes; let us hope that George Osborne pays it close attention.
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