10th June 2013
A think tank is urging the government to allow millions of UK taxpayers to have the opportunity to receive a stake in state-backed banks Lloyds and Royal Bank of Scotland writes Philip Scott.
A report from Policy Exchange, says that up to £34bn of the government’s £48bn of shares in RBS and Lloyds would end up in taxpayer hands and every British resident over the age of 18 who has a National Insurance number and is registered on the electoral roll, could apply for a share worth as much as £1,650 if the government put RBS and Lloyds back into the hands of the private sector.
Presently Lloyds is 39% taxpayer owned and RBS is 82% state-owned. It is expected that the auction of Lloyds shares could be announced in Chancellor George Osborne’s speech at the Mansion House on June 19.
The report, Privatising the Banks Creating a new generation of shareholders, authored by James Barty, formerly head of global equity strategy at Deutsche Bank, aims to examine all the options available to the government. It concluded that a distribution of shares in both banks to taxpayers be repaid on sale, combined with an institutional and retail placing, is the best solution.
Barty says: “Any privatisation has to be done in a way that will strengthen the banks and allows them to compete on a fully commercial basis when back in private hands. In our view that means finding a solution that moves the banks quickly from the public to the private sector, while at the same time generating a stable share price and an opportunity for the banks to raise capital. It is also key the taxpayer still benefits from any further rise in the share price.”
Barty’s report proposes that 50-55% of shares in RBS and 30% of shares in Lloyds would be distributed to taxpayers who are able to apply for them at no initial cost and that they are paid for at the time of sale. For taxpayers, this could mean somewhere between £1,100 and £1,650 worth of shares being allocated depending on the number of applicants.
He also asserts that a “floor price” be established at the original level the shares are sold and if the price falls under this level then no-one will want to sell. As a result taxpayers would take the profits from any rise in the share price above the floor price but would not lose any money if the share price dropped below the floor price. If the share price never exceeds the floor price, the shares would be returned to government ownership after 10 years. This gives taxpayers confidence in taking on shares as there is no downside or upfront cost.
Barty adds: “A distribution to taxpayers with the government to be repaid on sale, combined with an institutional and retail placing, is the only option that allows almost all the government’s stake in the banks to be sold ahead of a 2015 election. It also offers the most stable share price as distributed shares would not be sold below the price to be repaid to the government.
“This proposal will create a whole new generation of shareholders. We urge the Chancellor to take on the doubters and move ahead with this scheme.”