Today’s Sunday Times leads with a story about Conservative plans to sell off shares in the nationalised banks at a discount to certain groups of small investors – young people, for example – in a “people’s bonus”.
Osborne’s bank privatisation scheme is an attempt to inject fresh excitement into the Conservative campaign.
“The bankers have had their bonuses,” he said in an interview with The Sunday Times. “We want a people’s bank bonus for the people’s money that was put into these organisations.” The government spent £70 billion buying shares in the two banks to save them from collapse and now owns 84% of RBS and 43% of Lloyds.
While the shares are currently trading 30% below what the Treasury paid for them, City analysts expect the market will recover and a sell-off could begin within three years.
While the details of the Tory plan are still being drawn up, it is expected that people would be offered shares worth between a few hundred and a few thousand pounds at a discount on the market price.
The shares would be offered through the Isa scheme, so any dividends and capital gains would be tax-free. Even cheaper deals would be offered to young people and families on low incomes. There could also be special discounts for parents saving for their children.
This policy proposal, if true, is criminal.
When the Government acquired stakes in several UK banks, it do so for the common good – stability of the financial sector. The burden of the bail-out falls, while not necessarily proportionately, predictably via the general taxation system. It therefore seems equitable that, as the Government unwinds its investments, the debt it incurred stabilising the financial sector is paid off and the general tax burden is reduced. Depending on how well the banks are run in the next few years, the Government could even make a profit for the tax-payer – that would go some way to paying down debt incurred for fiscal stimulus incurred fighting the recession. Taxpayers would be rewarded, while not necessarily proportionately, predictably via the general taxation system.
Osborne’s proposal is incongruent with the Conservative party’s narrative on Government debt. Instead of realising the value of government-owned bank assets via sales at market price, he would – if the Conservatives are elected – crystallise the debt incurred saving the banks, transferring that value to a small group of investors who may or may not be most in need of government assistance. In essence, the “people’s bonus” is a lump-sum transfer to a small group of individuals from the government, paid for via general taxation.
And it seems very unlikely those who would benefit from the “people’s bonus” would actually be those on, for example, low incomes. Under the plans, those in specific social groups would be offered a discount on the market price. However, those most in need of government assistance are likely to be those who can least afford to invest several hundred pounds in the stock market, even with a discount. The relatively more affluent middle-class “young people”, or “families who are saving for their children” would likely benefit most. If Osborne really wants to use state resources to help specific groups, this proposal is a particularly blunt way of doing so – its outcomes would be uncertain at best, and the opposite to those intended at worst.
It is also entirely conceivable that some of those bankers whose well-remunerated actions were so damaging to the financial system, and thus necessitated the bail-out, could acquire discount shares in the nationalised banks and make a personal profit on them – a double-dividend.
If Osborne is electioneering, then he needs to come up with a more plausible explanation of why he intends to provide a windfall to affluent middle-class voters. And if he isn’t electioneering – if he really believes that the “people’s bonus” proposal actually rewards the general taxpayer for bailing out the banks – then he is a stupid banker.
