By Matthew Barrett
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As the BBC reports today, the Deputy Prime Minister, Nick Clegg, has written to George Osborne to ask him to consider the plan for re-privatising the public holding of shares in Lloyds and RBS by distributing shares to all British taxpayers – a policy created by the Centre for Policy Studies in their report "Give Us Our Fair Shares".
The advantage of the plan is that long-term public ownership of the banks is undesirable, and by distributing shares to taxpayers, the Treasury would receive full value from their shares that would not otherwise be realised if shares were sold in a conventional privatisation. The plan would give all taxpayers a windfall estimated at between £500 and £1000 each.
When individuals sell their shares or some of their shares, a fixed amount (the "floor price”) will be payable to HM Treasury. The floor would be deducted upon sale. The report explains the floor price:
"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, Treasury receives the first 850p and also CGT 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 Treasury receiving 877p. However if the investor waited and sold at 1500p his return would rise to 533p per share, with Treasury receiving 967p."
Nick Clegg noted the advantage of the plan, in terms of public confidence in the banking sector being partially restored:
"psychologically it is immensely important that the British people feel they have not just been overlooked and ignored. Their money has been used to the tune of billions to keep the British banking system on a life-support machine and they have absolutely no say at all in what happens when normality is restored."
Tim Knox, Acting Director of the Centre for Policy Studies, commented:
"The Deputy Prime Minister’s announcement that he is writing to the Chancellor asking him to consider the CPS proposals on reprivatising the banks is most welcome"
The full Centre for Policy Studies report can be read here (PDF).