Who should get RBS and Lloyds shares?
- 9 May 2013
- From the section Business
I blithely write that we as taxpayers own Royal Bank of Scotland and Lloyds - or rather the state controls 81% and 39% of these recuperating banks respectively.
But as and when they are privatised (and as you may recall, RBS hopes that'll be next year), who actually deserves to own them?
To become sententious for an instant (don't moan), this is a political, ethical and practical question.
The starting point is this: the Lib Dem bit of the government is keen on Portman Capital's notion of distributing all the shares to us, to citizens, for free, and the Tory part is not ideologically opposed; a more traditional Treasury approach would be to offer a portion of the shares being privatised to retail investors (people, not institutions) at a discount.
Let's ignore the logistical challenge (ahem) of registering as owners of these shares some 30 million or so different people, which would be required by the free-shares-for-all scheme. Or to put this another way, I am going to make the heroic assumption that if you chuck money at this problem (and it would be a good deal of money), it could be solved (which may be the lesson of the non-disastrous sale of tickets for the London Olympics).
The question is, who actually has a right to the free shares windfall?
When people like me write or say that taxpayers implicitly own them at this moment, there is an implication that only those who make a net contribution to the costs of running the state and its apparatus have that ownership right.
In other words, perhaps the free shares should only go to those people who pay more in taxes, perhaps, than they receive in cash benefits and tax credits.
But that number would be millions and millions of people fewer than all citizens. And most of these would be on relatively high incomes (to state the bloomin' obvious).
That narrow distribution would certainly be seen as very unfair by those who lost their jobs or cannot find work as a consequence of a banking crisis that not only led to the semi-nationalisation of RBS and Lloyds but also precipitated the worst recession since the 1930s.
It would exclude, for example, something like a million unemployed young people aged 18 to 24.
Also left out would be those whose incomes have been squeezed by our economic plight to a level where they are net recipients of benefits. Would that be just?
And what about the vast numbers of retired people on relatively low pensions who currently pay no income tax, but who paid tax all their lives, prior to retirement? Should they be deprived of the shares?
Social harmony would probably not be promoted if those who continue to coin it in our stagnating economy, including our friends the bankers, were to receive the free shares.
Perhaps the definition of taxpayer should go wider, given that it is impossible for any of us to avoid paying VAT and duty on booze and fags. If we think the shares should go to taxpayers, should they simply go to everyone, since we all pay indirect taxes?
But on that definition of taxpayers, the shares should go to children and foreigners, as well as income-tax payers.
In fact if paying tax is the qualification, foreigners resident here for tax purposes should certainly receive the shares. So does it feel fair to you that those only passing through the UK should receive RBS and Lloyds shares?
Perhaps therefore the shares should go to all British citizens. But should that include prisoners, or those on community service, or people on remand?
And here we also get into a practical difficulty, which is - as the Home Office is painfully aware - there is no reliable database of all British citizens.
Then maybe it should be those with National Insurance numbers who get the bank shares. But that would include lots of foreigners and prisoners. And, I am told, it is quite hard to prevent shares going to fraudsters, if the relevant dataset is those with NI numbers.
An alternative qualification would be registering to vote. But that would be seen as in effect imposing a financial penalty on those exercising their important right to opt out of the democratic system.
Or to put all this another way, the chancellor and prime minister would have to make quite a hard policy decision when deciding precisely who is entitled to the free shares.
And before taking the plunge in deciding who has really earned an entitlement to these shares, Messrs Cameron and Osborne may remember that the proceeds of a conventional privatisation by sale would be enjoyed by all of us anyway, in that those proceeds would reduce the national debt.
So our leaders may wonder why they should go to all the expensive bother of handing shares to everyone, if flogging the banks in the normal way would be a boon to all "taxpayers" (to use that imprecise word again).
Except of course that Portman has come up with the clever wheeze of saying that although the shares should be distributed to all of us for free, as and when we sell the shares the Treasury would get back from us a sum equivalent to what it has invested in the banks, and we would only get any profit over and above that
But this ruse to secure some money for the Exchequer would in effect lock up the Treasury's capital in the banks for years and even decades (it could not force the new owners to sell). And it would therefore be potentially very expensive for the Treasury (and, by implication, for "taxpayers" in aggregate).
All of which is a long-winded way of saying that the free-shares idea may be seductive, but it isn't a free lunch for government or citizens.
So what about the more traditional "Tell-Sid" privatisation route, of offering the shares to all of us as individuals at a discount to the price that the investment institutions would have to pay?
Well here we run into the question of whether "caveat emptor" (buyer beware) can and should apply.
The point is that in a stagnating economy, and at this phase of their recovery, RBS and Lloyds are not the kind of solid, reliable utilities - gas, electricity, telecoms and so on - that were privatised in the 1980s.
They are highly geared bets on whether the British economy emerges from its long period of torpor.
Solid and sustained economic recovery could see their shares double or even treble. A return to painful contraction would be a short cut to painful impoverishment for their shareholders.
Posit for a moment that millions of British people invested some of their savings in Lloyds and RBS just before an election. And then the eurozone imploded, mullering bank share prices and the wealth of all those who bought them.
That might not be the backdrop that the Tories and Lib Dems would ideally choose for their general election campaigns.
The previous government took the decision to buy £66bn of shares in RBS and Lloyds over a weekend in the autumn of 2008. It's not altogether surprising perhaps that the successor government is taking rather longer to work out how to get rid of these shares.