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

Photo: Getty
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Like it or hate it, it doesn't matter: Brexit is happening, and we've got to make a success of it

It's time to stop complaining and start campaigning, says Stella Creasy.

A shortage of Marmite, arguments over exporting jam and angry Belgians. And that’s just this month.  As the Canadian trade deal stalls, and the government decides which cottage industry its will pick next as saviour for the nation, the British people are still no clearer getting an answer to what Brexit actually means. And they are also no clearer as to how they can have a say in how that question is answered.

To date there have been three stages to Brexit. The first was ideological: an ever-rising euroscepticism, rooted in a feeling that the costs the compromises working with others require were not comparable to the benefits. It oozed out, almost unnoticed, from its dormant home deep in the Labour left and the Tory right, stoked by Ukip to devastating effect.

The second stage was the campaign of that referendum itself: a focus on immigration over-riding a wider debate about free trade, and underpinned by the tempting and vague claim that, in an unstable, unfair world, control could be taken back. With any deal dependent on the agreement of twenty eight other countries, it has already proved a hollow victory.

For the last few months, these consequences of these two stages have dominated discussion, generating heat, but not light about what happens next. Neither has anything helped to bring back together those who feel their lives are increasingly at the mercy of a political and economic elite and those who fear Britain is retreating from being a world leader to a back water.

Little wonder the analogy most commonly and easily reached for by commentators has been that of a divorce. They speculate our coming separation from our EU partners is going to be messy, combative and rancorous. Trash talk from some - including those in charge of negotiating -  further feeds this perception. That’s why it is time for all sides to push onto Brexit part three: the practical stage. How and when is it actually going to happen?

A more constructive framework to use than marriage is one of a changing business, rather than a changing relationship. Whatever the solid economic benefits of EU membership, the British people decided the social and democratic costs had become too great. So now we must adapt.

Brexit should be as much about innovating in what we make and create as it is about seeking to renew our trading deals with the world. New products must be sought alongside new markets. This doesn’t have to mean cutting corners or cutting jobs, but it does mean being prepared to learn new skills and invest in helping those in industries that are struggling to make this leap to move on. The UK has an incredible and varied set of services and products to offer the world, but will need to focus on what we do well and uniquely here to thrive. This is easier said than done, but can also offer hope. Specialising and skilling up also means we can resist those who want us to jettison hard-won environmental and social protections as an alternative. 

Most accept such a transition will take time. But what is contested is that it will require openness. However, handing the public a done deal - however well mediated - will do little to address the division within our country. Ensuring the best deal in a way that can garner the public support it needs to work requires strong feedback channels. That is why transparency about the government's plans for Brexit is so important. Of course, a balance needs to be struck with the need to protect negotiating positions, but scrutiny by parliament- and by extension the public- will be vital. With so many differing factors at stake and choices to be made, MPs have to be able and willing to bring their constituents into the discussion not just about what Brexit actually entails, but also what kind of country Britain will be during and after the result - and their role in making it happen. 

Those who want to claim the engagement of parliament and the public undermines the referendum result are still in stages one and two of this debate, looking for someone to blame for past injustices, not building a better future for all. Our Marmite may be safe for the moment, but Brexit can’t remain a love it or hate it phenomenon. It’s time for everyone to get practical.