Ten years ago the Government bought a majority shareholding in the Royal Bank of Scotland. It was “strictly temporary” Gordon Brown promised.
Last year saw the sale of the remaining state holding in Lloyds Bank. The Government more or less got our money back – £20.3 billion – although there was some dispute about the details. But RBS has proved more tricky. The shares cost £45.5 billion but are now worth only £20.4 billion. It still makes sense to sell. It’s what economists call a “sunk cost”.
Government isn’t very good at owning businesses. It is probably not pure coincidence that since its privatisation was completed last year Lloyds’ profits are up 23 per cent. Consider that 19 per cent of that money goes to The Treasury in Corporation Tax. When that is taken into account the long delay in privatisation has been at a considerable cost to the taxpayer.
This week it was declared that “a major hurdle” in the way of RBS privatisation had been cleared with the announcement of a proposed $4.9 billion settlement with the US Department of Justice “over the sale of toxic residential mortgage-backed securities”. That is welcome but it is in the nature of things that a business of that size with be forever clearing hurdles and finding new ones appear. It should have been sold years ago. If it had been, we might have found the biggest “hurdle” it faced to becoming a successful enterprise was the dead hand of state ownership.
Probably the economics of all this is not seriously disputed. The difficulty is the political distortion. Selling at a loss has been resisted due to the embarrassment of bailing out the banks and the money not being recovered.
In one respect though, the Government would be right to allow politics to be considered. Simply selling the RBS shares for £20.3 billion – as the best deal available for the taxpayer – might be a missed opportunity. For a start, what about giving some free shares to the 71,000 employees of the RBS? That would presumably mean lower immediate proceeds for the Government. But it might well result in a more successful future for the Bank.. That would be good news for the public finances in terms of future Corporation Tax revenues. It would also be fair given the uncertainty the loyal staff of that firm have been through.
The Government could also include a “Tell Sid” popular capitalism offer where any member of the public could buy a limited number of shares at a discount. That would be a route to wider share ownership. Capitalists are not the class enemy – they are the next door neighbour and Uncle Fred.
For that matter, what if £3 billion was set aside to give each of the 30 million UK taxpayers £100 of shares – if they take the trouble to apply. They could be encouraged to buy extra shares at a discounted price at the same time.
The details of what discount or how many free shares can be debated. But the case for the Government getting on with transferring the Bank into the private sector as soon as possible is overwhelming.