Tory disgraced bank share sell off met with criticism

News - Banking

Written by Ray Clancy

Wednesday, 24 February 2010 09:45

A plan by the Conservative party in the UK to sell shares in disgraced Royal Bank of Scotland and Lloyds, now owned by the taxpayer, at a discounted price as a people’s bank bonus has been met with criticism.

Such a scheme, that would take effect if they win the forthcoming general election, would dwarf the size of the previous privatisations of British Gas and British Telecom in the 1980s.

It is also uncertain how well disposed the public would be to the idea after the Government spent £70 billion buying shares to save the two banks from collapse and now owns 84% of RBS and 43% of Lloyds.

Tory Shadow Chancellor George Osborne said he hopes to use Margaret Thatcher’s 1986 sell-off of British Gas as the model for disposing of the state’s stake in Royal Bank of Scotland and Lloyds Banking Group.

This would mean enticing a fresh army of small shareholders to invest in the bank’s shares. Indeed it has already been dubbed a new Tell Sid sell-off, thanks to the advertising campaign of the Thatcher Era that featured characters urging each other to tell common man Sid to invest.

‘It will be like the public offerings of shares such as the Tell Sid campaign of the mid-Eighties. All individuals in out society will have a chance to own some shares in the future of these banks,’ Osborne declared.

The Tories hope that this plan will be seen as a way of giving something back to the taxpayers who have propped up the banks. The suggestion is that investors would be able to buy a few thousand pounds worth of shares at a discount, thus turning an instant paper profit. The hope is that they would hold onto these shares and benefit from the return of dividend payments, nurturing a saving and investing culture.

Osborne has also hinted that an added bonus would be that shares could be bought through the current ISA system and any gains would be tax free.

However, unless shareholders were already making substantial capital gains, it is unlikely profits on small stakes in banks would take them over the £10,100 annual capital gains tax allowance anyway.

Details of how a bank shares sell-off would work are sketchy. For example, the Conservatives did not clarify whether they would simply be selling off the taxpayer owned part of the banks or issuing even more shares via a rights issue.

Business secretary Peter Mandelson described the announcement as nothing more than ‘a silly little gimmick’ when the public finances desperately need bolstering. ‘What on earth are they doing giving away the shares at a knock-down price?’ he asked.

Liberal Democrat Treasury spokesperson Vince Cable said it was ‘Tory electioneering at is most cynical.’ He added; ‘actively encouraging people on very low incomes to invest in a volatile share market beggars belief and shows just how removed the Tories are from everyday reality’.