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, economics editor Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 80.

    The banking industry has a license to literally create money out of thin air. The hurdles to get a license even for community banking where they take deposits, pay decent interest rates and lend to local small businesses are terrible. See "Bank of Dave" C4player.

    As long as the taxpayer owned banks don't risk all then keep them in the hands of the taxpayer, in 20 years they might be in profit.

  • rate this

    Comment number 79.

    77. JustKBO 41 Minutes ago Ian at 70. "So specifically what assets have you personally been stripped of?"

    1)I am paying for the debt by low interest rates that make my savings worth nothing
    2)I was DEFINITELY stripped of my Northern Rock shares that were treated differently because that bank was based in the compliant Labour NE England.

  • rate this

    Comment number 78.

    #72. treacle_01

    "The majority of gilts are owned by pension funds."

    Of course they are. And we pay into them. It's how the government raises money to spend. And at some time in the future these government bonds, Gilts, fall due and are repaid with interest.
    By the government issuing more bonds, further increasing the national debt.

    No national debt - no spending.

  • rate this

    Comment number 77.

    Ian at 70. So specifically what assets have you personally been stripped of? You say politicians should be stripped of their assets 'because that's what they did to us'. So what assets did you have that somebody came and took away from you?

  • rate this

    Comment number 76.

    The Bank should have to pay back everything it owes to the British government (people) with interest. The bank would not exist if it were not for the intervention of the government of the day and that debt has to be repaid.

    Public funds bailed out a bank whose staff were raking in millions in bonuses whilst going bankcrupt - those staff should be in prison.

  • rate this

    Comment number 75.

    All very nice, however since all the money invested was borrowed, the shares when sold on the market must be used to pay down the debts incurred to acquire them as far as possible.
    To give them away would be as stupid as selling off state owned housing for less than replacement costs and giving those purchasing them a free cash windfall that borrowing on behalf of everyone actually paid for.

  • rate this

    Comment number 74.

    70. Ian

    I agree completely. All we need is a good pitch to bring DC and the GO onboard and the plots afoot. What do you get when hell freezes over?

    Just ice :)

    Why are men useless at making pancakes?

  • rate this

    Comment number 73.

    Sorry you've wasted your time Robert but this article is entirely hypothetical. The taxpayer will never recover the money used to rescue RBS and HBOS because they will never be sold at anything resembling a profit. There is no shortage of banks in the world - who would want to pay £Bs to buy another one, especially one with a huge risk of undisclosed bad debts?

  • rate this

    Comment number 72.

    55 Minutes ago
    The country needs to be in debt.
    If it wasn't then government bonds, Gilts, wouldn't exist.
    And the banks would have to forgo all the interest payments that they get from us.

    The majority of gilts are owned by pension funds.

  • rate this

    Comment number 71.

    This money came from the National coffers and should be returned to reduce our National Debt. Get real.

  • rate this

    Comment number 70.

    If this was an 'investment',it was a very bad one.I suggest that those in the New Labour government cabinet of the time should be held jointly and personally responsible.Even though they could not purchase all the shares,they should be stripped of their assets and given some bank shares in return.After all,that's what they did to us except We didn't actually receive the shares;just the debt.

  • rate this

    Comment number 69.

    Roberts' point relating to registering to vote is incorrect. People have no right to opt out of the democratic process at this stage, and there are already financial penalties for those failing to register ( although not often used).
    Their right to opt out of the process can only be through not voting at an election and this has no bearing on the names on the electoral register.

  • rate this

    Comment number 68.

    The country needs to be in debt.
    If it wasn't then government bonds, Gilts, wouldn't exist.
    And the banks would have to forgo all the interest payments that they get from us.

    Like it or not the banks have us all by the throat.

    Our role in life is to pay the banks. With a smile. Continuously.

    Same the world over. Unless you have loads of oil.
    Which Thatcher sold off cheap. Gave away.
    Same as ...

  • rate this

    Comment number 67.

    In short, Robert, what you are really saying is that this is a tom-fool idea.

    I am inclined to agree as it amply demonstrates that the great and the good have run out of ideas. I am already nursing a number of Lloyds shares for my senile mother who had been given them as a TSB saver. These shares are not much short of worthless at the moment.

    Why would I want more?

  • rate this

    Comment number 66.

    What will probably happen is these shares will end up being quietly sold into the private sector to some of Dave and Georges big business pals at knock down price and Government Minister will tell us plebs how they did a great job in off loading the liabilty. What should happen is the shares should be retained in trust on behalf tax payers until profit can be realised and used to reduce Gov debt

  • Comment number 65.

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

  • rate this

    Comment number 64.

    I don't really understand the debate here. the £66bn invested in the banks was raised by pushing the country further into debt. The country is now going through hell to try and limited further debt growth. Every penny raised from any future sales must go to reducing the national debt.


  • rate this

    Comment number 63.

    @61 splendidhashbrowns - I think you are missing the point Robert is making. If we all received the shares as per the hypothetical scenario, there wouldn't me a majority shareholder left who could force the sale of shares. it needs shareholders voting to do so (which is how big players can squeeze out little ones) and so wouldn't be an issue in this scenario

  • rate this

    Comment number 62.

    Government held shares in these companies should be sold on the share market as soon as is sensible to do so to generate cash for the country.
    These funds must be used to pay off the debts that were created when the bail outs were required.
    I don't believe governments have any business gambling with our taxes so should keep the period as short as possible.

  • rate this

    Comment number 61.

    as the BBC business editor you must know that your statement "the new owners cannot be forced to sell" is not correct.
    Do you not remember o2 which forced all small shareholders to sell? Also Panmure Gordon are doing the same to it's small shareholders. The Board of Directors can do anything they want and there's little the small shareholders can do about it!


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