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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The Brexit Beartraps, #2: Could dropping out of the open skies agreement cancel your holiday?

Flying to Europe is about to get a lot more difficult.

So what is it this time, eh? Brexit is going to wipe out every banana planet on the entire planet? Brexit will get the Last Night of the Proms cancelled? Brexit will bring about World War Three?

To be honest, I think we’re pretty well covered already on that last score, but no, this week it’s nothing so terrifying. It’s just that Brexit might get your holiday cancelled.

What are you blithering about now?

Well, only if you want to holiday in Europe, I suppose. If you’re going to Blackpool you’ll be fine. Or Pakistan, according to some people...

You’re making this up.

I’m honestly not, though we can’t entirely rule out the possibility somebody is. Last month Michael O’Leary, the Ryanair boss who attracts headlines the way certain other things attract flies, warned that, “There is a real prospect... that there are going to be no flights between the UK and Europe for a period of weeks, months beyond March 2019... We will be cancelling people’s holidays for summer of 2019.”

He’s just trying to block Brexit, the bloody saboteur.

Well, yes, he’s been quite explicit about that, and says we should just ignore the referendum result. Honestly, he’s so Remainiac he makes me look like Dan Hannan.

But he’s not wrong that there are issues: please fasten your seatbelt, and brace yourself for some turbulence.

Not so long ago, aviation was a very national sort of a business: many of the big airports were owned by nation states, and the airline industry was dominated by the state-backed national flag carriers (British Airways, Air France and so on). Since governments set airline regulations too, that meant those airlines were given all sorts of competitive advantages in their own country, and pretty much everyone faced barriers to entry in others. 

The EU changed all that. Since 1994, the European Single Aviation Market (ESAM) has allowed free movement of people and cargo; established common rules over safety, security, the environment and so on; and ensured fair competition between European airlines. It also means that an AOC – an Air Operator Certificate, the bit of paper an airline needs to fly – from any European country would be enough to operate in all of them. 

Do we really need all these acronyms?

No, alas, we need more of them. There’s also ECAA, the European Common Aviation Area – that’s the area ESAM covers; basically, ESAM is the aviation bit of the single market, and ECAA the aviation bit of the European Economic Area, or EEA. Then there’s ESAA, the European Aviation Safety Agency, which regulates, well, you can probably guess what it regulates to be honest.

All this may sound a bit dry-

It is.

-it is a bit dry, yes. But it’s also the thing that made it much easier to travel around Europe. It made the European aviation industry much more competitive, which is where the whole cheap flights thing came from.

In a speech last December, Andrew Haines, the boss of Britain’s Civil Aviation Authority said that, since 2000, the number of destinations served from UK airports has doubled; since 1993, fares have dropped by a third. Which is brilliant.

Brexit, though, means we’re probably going to have to pull out of these arrangements.

Stop talking Britain down.

Don’t tell me, tell Brexit secretary David Davis. To monitor and enforce all these international agreements, you need an international court system. That’s the European Court of Justice, which ministers have repeatedly made clear that we’re leaving.

So: last March, when Davis was asked by a select committee whether the open skies system would persist, he replied: “One would presume that would not apply to us” – although he promised he’d fight for a successor, which is very reassuring. 

We can always holiday elsewhere. 

Perhaps you can – O’Leary also claimed (I’m still not making this up) that a senior Brexit minister had told him that lost European airline traffic could be made up for through a bilateral agreement with Pakistan. Which seems a bit optimistic to me, but what do I know.

Intercontinental flights are still likely to be more difficult, though. Since 2007, flights between Europe and the US have operated under a separate open skies agreement, and leaving the EU means we’re we’re about to fall out of that, too.  

Surely we’ll just revert to whatever rules there were before.

Apparently not. Airlines for America – a trade body for... well, you can probably guess that, too – has pointed out that, if we do, there are no historic rules to fall back on: there’s no aviation equivalent of the WTO.

The claim that flights are going to just stop is definitely a worst case scenario: in practice, we can probably negotiate a bunch of new agreements. But we’re already negotiating a lot of other things, and we’re on a deadline, so we’re tight for time.

In fact, we’re really tight for time. Airlines for America has also argued that – because so many tickets are sold a year or more in advance – airlines really need a new deal in place by March 2018, if they’re to have faith they can keep flying. So it’s asking for aviation to be prioritised in negotiations.

The only problem is, we can’t negotiate anything else until the EU decides we’ve made enough progress on the divorce bill and the rights of EU nationals. And the clock’s ticking.

This is just remoaning. Brexit will set us free.

A little bit, maybe. CAA’s Haines has also said he believes “talk of significant retrenchment is very much over-stated, and Brexit offers potential opportunities in other areas”. Falling out of Europe means falling out of European ownership rules, so itcould bring foreign capital into the UK aviation industry (assuming anyone still wants to invest, of course). It would also mean more flexibility on “slot rules”, by which airports have to hand out landing times, and which are I gather a source of some contention at the moment.

But Haines also pointed out that the UK has been one of the most influential contributors to European aviation regulations: leaving the European system will mean we lose that influence. And let’s not forget that it was European law that gave passengers the right to redress when things go wrong: if you’ve ever had a refund after long delays, you’ve got the EU to thank.

So: the planes may not stop flying. But the UK will have less influence over the future of aviation; passengers might have fewer consumer rights; and while it’s not clear that Brexit will mean vastly fewer flights, it’s hard to see how it will mean more, so between that and the slide in sterling, prices are likely to rise, too.

It’s not that Brexit is inevitably going to mean disaster. It’s just that it’ll take a lot of effort for very little obvious reward. Which is becoming something of a theme.

Still, we’ll be free of those bureaucrats at the ECJ, won’t be?

This’ll be a great comfort when we’re all holidaying in Grimsby.

Jonn Elledge edits the New Statesman's sister site CityMetric, and writes for the NS about subjects including politics, history and Brexit. You can find him on Twitter or Facebook.