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

Getty Images.
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Five things we've learned from Labour conference

The party won't split, Corbynite divisions are growing and MPs have accepted Brexit. 

Labour won't split anytime soon

For months, in anticipation of Jeremy Corbyn’s re-election, the media had speculated about the possibility of a Labour split. But the party’s conference confirmed that MPs have no intention of pursuing this course (as I had long written). They are tribally loyal to Labour and fear that a split would prove electorally ruinous under first-past-the-post. Many still expect Theresa May to hold an early general election and are focused on retaining their seats.

Rather than splitting, Corbyn’s opponents will increase their level of internal organisation in a manner reminiscent of the left’s Socialist Campaign Group. The “shadow shadow cabinet” will assert itself through backbench policy committees and, potentially, a new body (such as the proposed “2020 group”). Their aim is to promote an alternative direction for Labour and to produce the ideas and organisation that future success would depend on.

MPs do not dismiss the possibility of a split if their “hand is forced” through a wave of deselections or if the left achieves permanent control of the party. But they expect Labour to fight the next election as a united force.

Neither the Corbynites nor the rebels have ultimate control 

Corbyn’s second landslide victory confirmed the left’s dominance among the membership. He increased his winning margin and triumphed in every section. But beyond this, the left’s position is far more tenuous.

The addition of Scottish and Welsh representatives to the National Executive Committee handed Corbyn’s opponents control of Labour’s ruling body. Any hope of radically reshaping the party’s rule book has ended.

For weeks, Corbyn’s allies have spoken of their desire to remove general secretary Iain McNicol and deputy leader Tom Watson. But the former is now safe in his position, while the latter has been strengthened by his rapturously received speech.

Were Corbyn to eventually resign or be defeated, another left candidate (such as John McDonnell) would struggle to make the ballot. Nominations from 15 per cent of MPs are required but just six per cent are committed Corbynites (though selection contests and seat losses could aid their cause). It’s for this reason that allies of the leader are pushing for the threshold to be reduced to five per cent. Unless they succeed, the hard-left’s dominance is from assured. Were an alternative candidate, such as Clive Lewis or Angela Rayner, to succeed it would only be by offering themselves as a softer alternative.

Corbynite divisions are intensifying 

The divide between Corbyn’s supporters and opponents has recently monopolised attention. But the conference showed why divisions among the former should be interrogated.

Shadow defence secretary Clive Lewis, an early Corbyn backer, was enraged when his speech was amended to exclude a line announcing that Labour’s pro-Trident stance would not be reversed. Though Lewis opposes renewal, he regards unilateralism as an obstacle to unifying the party around a left economic programme. The longer Corbyn remains leader, the greater the tension between pragmatism and radicalism will become. Lewis may have alienated CND but he has improved his standing among MPs, some of whom hail him as a bridge between the hard and soft left.

Elsewhere, the briefing against McDonnell by Corbyn allies, who suggested he was an obstacle to recruiting frontbenchers, showed how tensions between their respective teams will continue.

Labour has accepted Brexit

Ninety four per cent of Labour MPs backed the Remain campaign during the EU referendum. But by a similar margin, they have accepted the Leave vote. Jeremy Corbyn and John McDonnell, both long-standing eurosceptics, confirmed that they would not seek to prevent Brexit.

Owen Smith called for a referendum on the eventual deal during his leadership campaign. But with some exceptions, such as Angela Eagle, most of his backers have rejected the idea. Though 48 per cent of the electorate voted Remain, MPs emphasise that only 35 per cent of constituencies did. Some still fear an SNP-style surge for Ukip if Labour seeks to overturn the outcome.

The debate has moved to Britain’s future relationship with Europe, most notably the degree of free movement. For Labour, like Theresa May, Brexit means Brexit.

Corbyn will not condemn deselections 

The Labour leader could have won credit from MPs by unambiguously condemning deselection attempts. But repeatedly invited to do so, he refused. Corbyn instead defended local parties’ rights and stated that the “vast majority” of MPs had nothing to fear (a line hardly reassuring to those who do). Angela Eagle, Stella Creasy and Peter Kyle are among the rebels targeted by activists.

Corbyn can reasonably point out that the rules remain the same as under previous leaders. MPs who lose trigger ballots of their local branches face a full and open selection. But Labour’s intensified divisions mean deselection has become a far greater threat. MPs fear that Corbyn relishes the opportunity to remake the parliamentary party in his own images.  And some of the leader’s allies hope to ease the process by reviving mandatory reselection. Unless Corbyn changes his line, the issue will spark continual conflict. 

George Eaton is political editor of the New Statesman.