Who should get RBS and Lloyds shares?


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?

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Perhaps... the shares should go to all British citizens. But should that include prisoners, or those on community service, or people on remand?”

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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.

Public float?

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.

Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 20.

    I oft get blamed for being too simplistic and the case is that this subject is far from simple.

    Banks are being split into "good" and "bad" portions.
    The "bad" is so toxic it could destroy the world.
    Should we assume that we need divide that up for shareholders too?

    Banking is leverage.
    I put $1 in and it is leveraged 12 times = $12.
    If withdraw my $1 the $12 still counts (with no backing).

  • rate this

    Comment number 19.

    It’s simple - the shares go to those who have attended Eaton, Oxford or Cambridge and/or are related to someone with theses credentials.

    Unless: -

    You’re a member of a trade union, earn less than £650k or pay more tax than £9k a year.

  • rate this

    Comment number 18.

    12. veritas

    The article agrees with what you say, read through it also says,
    "Payments to Treasury by the two companies through fiscal year 2023 are projected to exceed by $51 billion the aid they have received under conservatorship..."

    The point I was trying to make was, the rush to sell is perhaps more to do with political ideology rather than it's benefit if any to the taxpayer.

  • rate this

    Comment number 17.

    Since Gordon Brown was CEO of GB PLC at the time of the bailout, clearly he should collect a deferred bonus - like the banksters do.
    And George Osborne have a few millions added to his bonus pot.
    The shareholders, us, can share anything left.

  • rate this

    Comment number 16.

    Aye, I understand. But if you looked at every aspect of life I suspect you'd see it is all a sham. The dodgy 'Global' economy, your retarded Boss, the social circus.
    We squeeze the ones who can't cope with it and call them Mental Patients, lock 'em up. If you really looked through the looking glass you'd see leather shoes mean more than human life as long as it is far enough away. Modern age.

  • Comment number 15.

    All this user's posts have been removed.Why?

  • rate this

    Comment number 14.

    If shareholders had not supported the various rights issues during the crisis then the governments position would have been far worse. Shares need to be gradually disposed reflecting the de-risked position, there maybe a loss today but over time and reflecting greater confidence in banks and our financial industry, profit will be seen on an aggregate basis. No strategy/action = ongoing uncertainty

  • rate this

    Comment number 13.

    The money should go back from whence it came.

  • Comment number 12.

    All this user's posts have been removed.Why?

  • rate this

    Comment number 11.

    The value should be distributed amongst those on benefits.
    My Wife and I work 37.5 hours a week, 1 on nights 1 on days. We have the opportunity of work so all is well.
    The wealth should be given to the poor old, families etc.
    I don't advocate this to reward the obese feckless parent but in the hope that some of the money would 'trickle down' to the children. The old should be honored full stop.

  • rate this

    Comment number 10.

    Shares in Lloyds are up about 80% over the last 12 months and RBS are up about 40%. Considering that both banks have returned to profit it can't be long before the share price of both banks begin to reflect their underlying profitability. If the government can hold on for a few more years they could be sitting on a hefty profit.

  • rate this

    Comment number 9.

    I assume, Robert, that your aim was to show how absurd the proposed approach is!

    You might as fruitfully ask "what proportion of the UK's gold reserves do I own?" Clearly, the bailout stake was pooled, and the return on the bailout should also be pooled, paid into the public purse.

  • rate this

    Comment number 8.

    The citizens of the UK... directly, not 'held in trust' by the government & frittered away on whatever schemes politicians come up with to their benefit not ours.

  • rate this

    Comment number 7.

    The money used to bailout the banks was borrowed. Whatever is returned, goes to repay the national debt. No need to argue in economic circles.

  • rate this

    Comment number 6.

    Technically the state owns the shares,we get to elect an MP,the house of commons forms a government,the tax collected & how it is spent is their decision.In other words it's not really taxpayer money it's the states.

    It could also hold on to the shares,but that's not going to happen is it


  • Comment number 5.

    All this user's posts have been removed.Why?

  • rate this

    Comment number 4.

    An interesting hypothetical discussion, but we all know that when the shares are sold the money will simply go into the government coffers to reduce the deficit. GO will then stand up in parliament and tell us what a wonderful job he has done.

  • rate this

    Comment number 3.

    Good convincing argument for not handing out the shares to the "taxpayer", whoever he may be. But your argument against privatisation isn't so compelling. Everyone knows shares may go down as well as up - for the last few years bank shares have done little else. Retail investors can make their own choice; price it right and the institutions'll snap up the rest.

  • rate this

    Comment number 2.

    The Treasury should hold on to the shares for a few years – until they have risen considerably in value and then sell for a large profit and use it to retire some of the ever increasing national debt.

    Why would we listen to bankers telling us that we should sell next summer?

  • rate this

    Comment number 1.

    What happened to the shares that some people owned BEFORE the bailout?


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