Why the public must get their share of RBS and Lloyds

My Lib Dem colleagues and I will not stand by and watch private investors reap all of the benefits once the banks are taken off intensive care.

Despite its importance to our economy, the world of finance has never elicited such a visceral repulsion from the public. This feeling can be summed up in three words: banks, bankers, bonuses.

The effects of the financial crisis of 2008-9 are still felt throughout British society and around the world. While the stewardship of the coalition government means interest rates remain low, the cost of bailing out the banks (an eye-watering £66bn) means that few Britons are immune from the deficit reduction plan necessary to return the nation’s books to good health. With this in mind, my Liberal Democrat colleagues and I strongly favour giving the public something back for the pain visited on them by the financial sector’s actions (we hope they will punish Labour politicians in 2015 for their own role in not saving for a rainy day). In a 2011 Centre Forum paper, in conjunction with Portman Capital, I proposed a public distribution of the government-owned RBS and Lloyds shares with a floor price built into the sale, meaning the government would re-coup its original investment in the two banks with the public gaining in the increase in the share price. This idea will sound familiar as several groups have since proposed similar ideas, most recently Policy Exchange. 

How does the floor price work?

For illustrative purposes only, let us assume that the price of the share is 1000p on the day of distribution with the floor set at 850p. When an investor sells, the Treasury receives the first 850p and also Capital Gains Tax on the difference between the floor and the sale price. The investor receives the balance. In our example, if the investor were to sell immediately at 1000p she would receive 123p, with the Treasury receiving 877p. However, if the investor waited and sold at 1500p his return would rise to 533p per share, with the Treasury receiving 967p. When you sell your shares, the "floor price" is deducted from the sale price, with the public receiving the difference. The floor price will be based on the prevailing market price, but will be at least the 51p per share we paid for RBS and the 74p per share we paid for Lloyds.

Why a conventional privatisation should be rejected

A "share overhang" is when the market expects a large sale from one seller, the situation we would find ourselves in if a normal privatisation is pursued.  Worse, as the government owns such a large proportion of the banks, the market is unable to absorb all of the shares at once, requiring the staging of sales over a number of years. Thus, the shares would have to be sold below market price, with the initial sales being the most heavily discounted, destroying value for British taxpayers. This happened when the US government sold its shares in GM Motors, with the first tranche of shares selling for $11 less than the break-even price to recoup its original investment.

A YouGov poll shortly after my policy was announced found that the majority of the public, across all political parties, supported my idea. The list of supporters has grown since then to include MPs from all sides and think-tanks from across the political spectrum (most recently  the Tory-facing Policy Exchange). The Chancellor should now join the list and announce that the coalition’s intention is to begin a public distribution once a sale of the shares is feasible. The Lloyds share price is sufficient enough to be considered for a sale in the near future, though RBS, despite Stephen Hester’s suggestion that it could be privatised by as early as next year, needs more time to regain strength before we will be confident of recouping our bailout cost from its share price.

The issue of what to do with the government-owned shares in RBS and Lloyds will dominate the next couple of years of the coalition, leading up to the 2015 election. I hope that this debate will focus on the nuances of a public share distribution (who should be eligible? how will voting rights be awarded?), rather than criticism of a typical privatisation whereby rich individuals profit from institutions saved by the taxpayer. My Lib Dem colleagues and I will not stand by and watch private investors reap all of the benefits once the banks are taken off  intensive care; the public must get their share.

Stephen Williams is MP for Bristol West and co-chair of the Liberal Democrat Treasury Parliamentary Policy Committee

An employee of the Royal Bank of Scotland walks inside the company headquarters at Gogarburn in Edinburgh. Photograph: Getty Images.

Stephen Williams is the MP for Bristol West and co-chair of the Liberal Democrat Treasury Parliamentary Policy Committee

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Michael Gove definitely didn't betray anyone, says Michael Gove

What's a disagreement among friends?

Michael Gove is certainly not a traitor and he thinks Theresa May is absolutely the best leader of the Conservative party.

That's according to the cast out Brexiteer, who told the BBC's World At One life on the back benches has given him the opportunity to reflect on his mistakes. 

He described Boris Johnson, his one-time Leave ally before he decided to run against him for leader, as "phenomenally talented". 

Asked whether he had betrayed Johnson with his surprise leadership bid, Gove protested: "I wouldn't say I stabbed him in the back."

Instead, "while I intially thought Boris was the right person to be Prime Minister", he later came to the conclusion "he wasn't the right person to be Prime Minister at that point".

As for campaigning against the then-PM David Cameron, he declared: "I absolutely reject the idea of betrayal." Instead, it was a "disagreement" among friends: "Disagreement among friends is always painful."

Gove, who up to July had been a government minister since 2010, also found time to praise the person in charge of hiring government ministers, Theresa May. 

He said: "With the benefit of hindsight and the opportunity to spend some time on the backbenches reflecting on some of the mistakes I've made and some of the judgements I've made, I actually think that Theresa is the right leader at the right time. 

"I think that someone who took the position she did during the referendum is very well placed both to unite the party and lead these negotiations effectively."

Gove, who told The Times he was shocked when Cameron resigned after the Brexit vote, had backed Johnson for leader.

However, at the last minute he announced his candidacy, and caused an infuriated Johnson to pull his own campaign. Gove received just 14 per cent of the vote in the final contest, compared to 60.5 per cent for May. 


Julia Rampen is the editor of The Staggers, The New Statesman's online rolling politics blog. She was previously deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines.