Nick Clegg’s innovative proposal to give the public shares in Lloyds and RBS is enthusiastically welcomed by Liberal Youth: but we believe that these reforms can go even further. Young people are bearing the brunt of the recession caused by the banks both in a lack of jobs and lost funding for education, and because it is the next generation that will be paying off the government’s debt for years to come. It is only right the government should give something back to them.
While Nick’s proposal represents exactly the kind of fairness that Liberal Democrats seek to bring to this government, young people should be included. I believe that this scheme should not be limited to those on the electoral roll; rather shares should be given as Stephen Williams suggested to all those with a National Insurance number, thus including 16-18 year olds, and for those under 16 shares should be held for them in a trust until they turn 16. As the economy begins to recover these shares will increase in value and give young people the financial support at a most vital time of their lives, and would be a clear reaffirmation of our commitment to the next generation that they will not pay for the mistakes of a few of the current generation.
Today I have written to Lib Dem parliamentarians, urging them to extend the allocation of shares in Royal Bank of Scotland and Lloyds Banking Group to those aged under 18. Administering the scheme through NI numbers and a trust scheme would be a step towards achieving this. Liberal Youth will help in any way possible with developing policy in such a way as to achieve this.
This government has a responsibility not just to prevent an increase in the debt burden the next generation will inherit, but also to mitigate the damage that the banks have inflicted through the recession on young people. They are suffering the worst of the recession: they should not be excluded from the benefits of the recovery.
Tom Wood, is Chair-Elect of Liberal Youth. He takes office as the National Chair of Liberal Youth for one year commencing July 1st 2011.
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22 Comments
I agree the proposal should use NI numbers.
Not just to include young people (though it should) but to include everyone that pays tax in this country since it’s our tax that bailed out the banks.
The electoral register would exclude residents that just happen to not be British or Commonwealth (or European depending on which register is used). Since everyone is expected to pay tax, everyone should be included.
Why not restore the EMA and Child Trust Fund with this money? Far better use than paying a lump sum to every adult. Not that this mad proposal is ever going to enacted anyway.
What we had before was a large number of mutual “building societies”. This model worked very well, the building societies survived all kind of economic upheavals and were a safe place to leave your savings.
Then they were demutualised and became banks. The banks merged, sometimes into other kinds of banks and became bigger. They become irresponsible in their lending, perverse incentives and massive bonuses encouraged short termism and in 2007 an economic catastropy which could come back and hit us again when Greece defaults.
As a result Nick Clegg and Vince Cable recommended that we should seperate retail and casino banks, and that banks should be made smaller.
Vince tells as he never fell for light touch regulation because he opposed the demutualisation of the banks. It would be good then to see a remutualisation of the banks so that we can return to the stable system we had before.
This policy does not propose that. It is a mixed bag. No one is excited by wider share ownership because unlike the 1980s we have a sluggish economy which will remain as such for a long time. However for those in financial hardship they can sell their shares straight away and pay off some of their debts, so that is good news.
It is a one off payment of course, and will provide a short term stimulus.
I am unclear how the model will work otherwise. Will short termism and perverse incentive return, or are there safeguards against that? As shareholders, can we stop the bank investing in the arms trade?
I look forward to the fringe meeting at Lib Dem conference.
@g – why is this mad? Any windfall from this could only be reflected in one year’s budget – you’d still have to find the money for subsequent years.
Geoffrey Payne – demutualisation would get the banks off the govt’s books, but it wouldn’t return the money to the Treasury which had been lent causing some financial problems.
Tom – a good proposal, but I seem to recall that under-16s can’t own shares directly which is what’s proposed here?
@g
One of the proposed benefits is that the government is still expecting to make as much as if they sold it off normally.
A person holds the share which is locked until it reaches a certain value. At that point the owner has the option of selling it, where the gvt take back the money they spent on the shares and the owner reigns the profit.
Normally big privatisation deals end up with the gvt selling hugely below Market price and the initial buyers gaining from it. Because this would break the transactions into small sales in intervals rather than a big buyout in one go, this scheme wouldn’t suffer such a disadvantage. The gvt will make about the same, but every tax payer would receive a share in the profits.
@ Geoffrey
As KL mentions, simply re-mutualising the bank would simply lose the gvt assets. I’ve heard that Vince is now planning to sell it to existing mutuals instead, and then perhaps they’ll be able to mutualise it from there.
This “handing out shares” is a much better option than normal privatisation though.
I need to look more into this to see whether I think this is a good idea or not.
But banking shares at the moment are doing badly because banks are very exposed European countries that could potentially default. It’s quite possible that no one will be able to get a good price for them for a very long time. And of course, once you do give out shares they can go down as well as up, and it takes skill to know when to sell them. Most people probably won’t be able to maximise their share price.
A Lib Dem Lord was on BBC News a little while ago saying this was a good idea because instead of the Treasury taking the profits and the government spending it how it likes, taxpayers can choose how to spend the money themselves. Wouldn’t it just be better if we lowered the tax burden on people?
On the plus side if this happened and it worked and the country was happy it happened, then it would probably be attributed to us which could get us some brownie points.
Personally as someone who’s soon to be 25 I think the best way the government could help out young people is to build a stable economy that has sustainable growth that isn’t reliant on easy credit and low interest rates, that creates jobs and opportunities.
@Daniel given that the coalition, including Nick Clegg, frequently cite the lack of money as a reason for cuts to services for the most needy it beggars belief that he would argue for a general giveaway instead of protecting at least one essential service that is subjected to cuts. It stinks of being little more than a bribe for a little bit of popularity.
@g
As I explained earlier, this wouldn’t be a huge loss on the government compared to wholesale privatisation.
Trying to sell all the shares all in one go tends to lead to buyers getting a good deal a the expense of the government.
Under this scheme, the gvt would get back the money it put into it, but people would also be able to make a personal profit, and due to them selling individually, their selling price wouldn’t suffer from having to flog the whole lot in one go.
@Daniel The selling price wouldn’t suffer from having to flog the whole lot in one go if the whole lot wasn’t flogged in one go!
Tom Wood is absolutely right that younger people should not miss out if Stephen Williams’ proposal is implemented. We (I’m 24) will have to pay higher taxes and get less from the government in terms of services and benefits in order to chip away at the debt burden that this banking crisis has saddled the country with.
I also strongly agree with SFolliot that shares should be alloted by NI numbers (with the government keeping enough shares for all children under 16 in the 2011 census so that they get theirs when they turn 16 or 18). As he/she says, this is meant to be giving taxpayers something in exchange for their support of the banks, so it should go to UK taxpayers regardless of what citizenship they have. (This would also hopefully exclude the likes of Lord Ashcroft.)
More generally I’m broadly positive to the idea, if not 100% convinced. Creating an army of small shareholders might lead to better scrutiny of what Lloyds and RBS are up to in the press, but it is important that the banks learn from building societies and try to make their AGMs as accessible as possible for small shareholders (such as by allowing internet voting). Otherwise dispersed ownership will simply lead to poor oversight of the board and thus the bank.
@Geoffrey Payne: The problem with re-mutualisation is that a bank’s customers will have to raise the money to buy all of its shares from their current owners. I doubt that many people will be willing to pay a few hundred pounds each (at least) in order to take over their bank along with millions of other customers – their individual voice will be too small to make that worthwhile.
And it would not be fair (and might fall foul of EU competition law?) for the government to give its stakes in Lloyds and RBS to those banks’ customers – that would leave all the taxpayers who don’t bank with them with nothing.
I say all of this as a fan of mutuals – most of my savings are with building societies and I am very impressed with the Co-operative Bank (though not a customer I did apply for a job there and have researched them). One benefit of the mutual structure is that it is not possible to raise capital by issuing more shares, so the management is forced to be cautious in its lending so that the capital accumulated through past profits is not lost. This is of course a disadvantage if a mutual gets into difficulties despite this incentive to be cautious, as some building societies discovered during the crisis.
Niklas Smith – If we want people to benefit financially from selling the banks then why not lower taxes instead? It would be more straight forward and it still gives them the opportunity to spend the extra money however they wish.
How can we ensure that people who don’t know how to trade sell their shares at a high price? It would probably be fairer to lower everyone’s tax burden by an equal amount.
I remain to be convinced that this is not a silly gimmick.
I’m no expert on this at all, but surely it would be better to “benefit financially” the tax payer by using any eventual windfall on not issuing extra bond market debt?
As long as there is another way of not flogging all the bank shares off at the same time, isn’t it better that we use it to fight the deficit and debt (not that it’s likely to be enough to ameliorate this titanic problem, all that much).
@Niklas I know it is good to get the money back to pay off the deficit, but we should also be thinking of a solution that will last long term. Northern Rock lasted over 100 years as a building society, despite economic upheaval, and less than 15 as a bank.
Perhaps they could send out the shares with our polling cards.
Has anyone but the alphabetically frugal ‘g’ given this a nanosecond of thought or are you too distracted by the cartoon pound signs flashing in your eyes? A 37 billion quid giveaway utterly undermines the entire credibility of the coalitions deficit reduction plan. Nope sorry, we just don’t have the money to pay benefits to the terminally ill but hey, we do have money for the biggest electoral bribe in history. With one stroke every argument the coalition has been making, ad nauseam, for a severe fiscal retrenchment unravels and any moral authority they can still muster shrivels away.Far better to use this money to invest for the future. Put it into something worthwhile like child trust funds, the green investment bank, and/or a programme of public works etc.
I wonder, do @g and @AndrewR overlook the ‘government sets a sale price floor and takes back the cost they paid with the individual only keeping the profit’ part through ignorance, incompetence or malice?
There is no loss to government by returning the shares to the market in this way – if anything they’ll gain from being able to tax the profit on sales where individuals incur CGT.
Thankfully this insane idea won’t be allowed by those in charge of the government. The admin costs would dwarf any benefit and why spend so much time and money on something that transfers something from public ownership to public ownership? It’s just an ideological exercise in pointless bureaocracy. Besides, RBS and Lloyds are likely to be repairing their balance sheets for years to come (especially when you consider that house prices have only partially fallen in price so far and conservative estimates put the bottom of the market at least several years hence) and the chances of those shares going up in value any time soon is negligible.
So, a scheme undertaken at huge expense to transfer worthless bits of paper to people that are already paying for the worthless bits of paper then. Personally, I’d prefer to see a scheme that hunts down all the shareholders the profited from the bubble (that was created by their desire for easy profits) and forced them to pay back their ill-gotten gains.
@Andrew Tenannt
There are precedents for the sale of state assets via the giving of shares to citizens. Russia.
How do you think the oligarchs got rich?
@ Kl a good point about share ownership, however I’m propsing the goverment look into setting up some kind of trust to hold the shares of under 16s until they turn 16.
The shares will only reach the minimum level when the banks are profitable, so people who are given shares and hang onto them will get the dividend the bank pays out. Once the giveaway has finished it will be up to the bank concerned to pay the administrative cost of managing so many shareholders.
If the Treasury tries to sell large slugs of shares on the market, the price will have to be low compared with existing quoted price and the only way to get over it is to sell very small quantities over a long period of time. With millions of people making individual decisions, the ‘overhang’ problem is solved.
If you give these shares to 16-18 year olds, you’re still denying them to 0-15 year olds, not to mention those not yet born. So why not give a guaranteed equal share to everyone, and shareholders could nominate people to vote for them at the AGMs, and we might as well call these people “Members of Parliament” and the process used to nominate them a “general election”.
Any form of “giveaway” model just does NOT give “intergenerational fairness”, and I’m afraid it seems to me to be very silly to use this term and yet really mean “just that group of people a year or two younger”. Share giveaway models used in the past have not at all generated a “shareholder democracy”. Rather they have simply shifted control to City fat cats, and quite often foreign governments. People who are feeling the pinch WILL sell their shares. Imagine if we were allowed to sell our general election votes – how many people would do it? A great number, I think, and then complete control of our country could be bought up. I remember when all this first started and Margaret Thatcher was parading as the great defender of UK independence how angry I felt because I could well see how her privatizations were opening the back door to all she claimed to be holding the front door against. Is this not a mark of the huge bias of our press that they will go on and on about EU control, but have nothing to say about this? In fact they use this anti-EU line as just a smokescreen to hide the fact that they are in full support of the process by which the UK is becoming a colony of the international high finance set.
Sale of council houses is still lauded as a great triumph, but it benefited only those who were lucky enough to be tenants. The money given away by below-cost sales has been frittered away, leaving the next generation without the safety net of council housing that was such a huge provider of real FREEDOM. My parents were so much more free to live and raise a family as they wanted than the next generation who could not afford to buy and would never be given a council tenancy due to them being sold off. The rich who dominate politics and political commentary in this country just cannot see that, which is why they think extreme free market economics is “liberal”. They have never known what it is like to be oppressed by poverty, they are clueless, and it is a crying shame that their voices are heard almost to the exclusion of any other these days – even at the top levels in our own party.
Yep, everything that Matthew said.
“Shareowning democracy” was either a con or a pipedream in the 1980s and it’s the same thing now. Remutualisation would make sense except for the difficulty of raising the money from customers to pay back the public debt – perhaps it could be converted into a long-term bond owed by the mutual society? But I suspect that would render the business unviable.