Nick Clegg’s very public call for the British public to be given shares in the bailed-out banks — creating 46 million shareholders and allowing collective ownership of banks — has garnered acres of coverage the past couple of days.
It’s three months since Lib Dem MP Stephen Williams first proposed the privatisation of its 83% stake in RBS and 41% in Lloyds by distributing shares to the public. Here’s what my co-editor Mark Pack said about the idea at the time:
Giving everyone shares in the banks: Stephen Williams’s proposals examined (7th March, 2011)
Stephen Williams’s plan is to give shares owned by the government in the banks to everyone on the electoral register. A floor would be set so the shares could not be sold until they had passed the price paid by the government and individuals would only keep any gains made above that floor price. In other words, as the shares rise in price and get sold the government gets back the funds it put into the banks and, if the banks do well, the public gets to profit from that. … there are plenty of questions that the scheme raises, but as this is a proposal designed to help set the political agenda rather than a finely worked out imminent piece of legislation, that is as much a compliment as anything else. It’s a good contribution to the debate. The Facebook page to support this proposal is at www.facebook.com/supportpublicshares.
Toby Fenwick of Portman Capital Partners LLP explained the technical aspects of the scheme further here:
The Independent View: How the Stephen Williams plans for the banks would work (11th March, 2011)
The proposal to distribute the shares to the UK people is innovative, and as the British people will participate without having to provide cash up front, it has fairness at its core. Over time, the scheme is likely to deliver a profit for recipients, over and above the repayment of the £66bn that was spent to rescue the banks in the first place. The press has understandably been focussing on the individual’s profit, with some critics suggesting that the Government should simply sell the stakes to fund additional debt reduction, tax cuts or additional public spending. This is based on the assumption that the amount of money generated by the share sales would be equal under both scenarios. We think this is inaccurate. We believe the act of distributing the shares will significantly increase the total receipts to the taxpayer.
It’s been quite amusing to see the Cleggphobic right-wing press work out how to attack the Lib Dem leader without appearing to be wanting to deprive their readers of the shares the taxpayer has paid for.
As a result, the Telegraph and Mail have largely played the story pretty neutrally. To add to Tory confusions, John Redwood has enthusiastically backed the proposal.
The Guardian has had fewer compunctions in dismissing the idea out-of-hand, instead advocating that the state ‘hold on to these banks and use them to foster a sustainable recovery’: because of course governments can be trusted so much better than individuals. Though even the Grauniad has hedged its bets by opening a poll to ask readers whether they back the plan: so far, there’s a slim 53%-47% majority in favour.
What do Voice readers think of the propoal to give away shares in the state-owned banks? Feel free to show your working in the comments thread, below…
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7 Comments
I wish somebody would explain why – after we’ve been told for months that the government has had no choice but to make swingeing cuts in benefits and public services because the public finances are in such a dreadful state – we are now being told it’s time for a multi-billion pound cash handout to everyone on the electoral register. Is “electoral” perhaps the key word in this?
The proposal is the wrong way to go about it. But politically it may be the right thing to do. Puts Lib Dems on the ‘right’ side of the banking issue in the public eye, almost uniquely. Now is the time to come up with a more radical break-up and mutualisation proposal for ALL banks working in Britain, including the foreign owned ones.
I have my concerns, as I think we should use the sale of the shares to pay down the national debt. However, my understanding is that the government will recoup the first £66 billion – which was the amount they spent on the bailout – which does go some way to allieviating my concern.
Still, giving taxpayers shares in banks and them taxing them to pay off the nation’s debts does have the air of giving with one hand and taking away with the other.
It’s an interesting prospect, however I’d have more confidence if it was proposed that this should also become a model for future denationalisations if it proves successful.
Personal savings rates have to increase to complement the national deficit reduction plan, so it’s surprising that more hasn’t been said about having a ‘balanced portfolio’ to offset the inflationary risks of low interest rates and the distortions caused by other imbalances – the gradual decline in share ownership in recent years does much to explain how small sections of the economy have accumulated so much power which even one-off initiatives such as this cannot address sufficiently.
The unequivocal preference for the majority of the public to use the property market rather than the stock market (or other financial markets) as the place to invest savings not only helped create an unstable bubble, but it also allowed a massive wealth transfer from poor to rich to ocurr – other than learning by collective failure, what is being done to raise awareness of these choices, encourage us to exercise them and open up access?
The government will waste some money administering this scheme. Many people will not be interested in the shares and will sell them at the first opportunity.
I’d rather all profits were taken into the Treasury and used to benefit the public either by improving public services, reducing the national debt or reducing the tax burden
This is something I probably would have been quite enthusiastic about years ago, but the sobering experience of share handouts leading to oligarchy in Russia, and the sorry story of the demutualised Building Societies in the UK both lead me to think it is an idea whose time has come and gone. The more important thing now would be to work out just why this sort of thing has not led to the “shareholders’ democracy” we in our more naïve days thought it might do, and whether there are other models which might work better to give the sort of participatory society we as liberals want to build.
I do find it strange that with public sector pensions being in the news, the power in theory with which we citizens have through these schemes is hardly ever discussed. Having sat on the committee which managed my local authority’s pension scheme investments, it became clear to me that the fund managers don’t like the idea of active ownership and would hate to be told as mere “managers” to organise vote-casting from the owners. In particular, we DO have the power merely as citizens of our local authorities to cast our votes against the outrageous payments made to bankers, chief executives and the like, but it seems to be considered bad form to mention it.
If Redwood wrote restaurant reviews I would read them to know where not to eat.
No wonder he likes the idea. Even Thatcher did not dare subsidise the Tory deception of a “share-holding democracy” to the extent proposed here.
The proposal does have a mechanism to retrieve some of the capital value of the shares being distributed but the administration costs will be huge and the money is only recovered when the shares are sold. The costs and risks of ownership are retained by the Government.
The shares will only be kept by people who can afford to keep them. It would probably be bad financial planning for all but the wealthiest to hang on to them because they are currently so volatile, they have fallen in value by a third in the last few months, which is not something most people cannot afford to happen to their assets.
The shares would effectively be preference shares with no control over the running of the companies. The real voting power would be even more concentrated in the hands of those that allowed the reckless behavior of the banks that led to the crisis.
Liberal Democrats in government should be more concerned with leading the way on matters of real participation, like ensuring Northern Rock becomes a mutual again, or providing workers with a real stake in their companies, perhaps getting employees to care more about the good management of their banks than their individual bonuses. Why do I hear more about this from Red Tories and Blue Labour than from Liberal Democrats?