Stephen Williams: We can get something back from the banks we bailed out

THE banking crisis and economic recession of 2008 to 2009 formed the backdrop to the 2010 General Election. The new Liberal Democrat-Conservative coalition Government has now embarked on a course of radical reform in order to stabalise the nation’s finances and restore sustainable economic growth.

While debate rages over changes to taxation and to the allocation of government spending, there is also a strong and growing undercurrent of discussion on the nature of our economic model.

The banking crash was undoubtedly a crisis for capitalism but the policy response at home and abroad has averted disaster.

Sign up to our daily newsletter

The i newsletter cut through the noise

It is right that people should question some of the economic policies and business practices that led us to the brink of disaster.

Surely we can’t return to business as usual? Are there alternative models of capitalism that can work in an open economy that deliver prosperity that is shared more fairly?

What to do about the banks and the bankers is at the heart of this debate. My pamphlet, focuses on the narrow but significant issue of what to do with the nation’s shareholdings in two of the world’s largest banks.

We are the effective owners of Royal Bank of Scotland and the Lloyds Banking Group. Our taxes bailed out the banks and our Government now owns two of them in our name.

The time will soon come for the state to divest itself of these enormous shareholdings. In my lifetime, I’ve seen many state sell offs and privatisations. In my professional career, I even worked on some of them!

An opportunity now arises for the coalition Government to try a new model of privatisation. HM Treasury needs to recover the approximately £66bn it spent bailing out the two banks.

There is a general feeling in the country that we need to get something positive in return for the bail out. This pamphlet puts forward an idea for giving us all a stake in the banks, for HM Treasury to clear its debt and just maybe for an increase in confidence that capitalism can be popular and fair.

As a result of the 2008 financial crisis, Royal Bank of Scotland (RBS) and Lloyds Banking Group (Lloyds) were rescued by a British taxpayer-funded recapitalisation, leaving the British Government as the reluctant owner of 84 per cent of RBS and 43 per cent of Lloyds.

Government should not be in the business of running banks. As the banks return to profitability, it is time to consider options for returning them to the private sector.

The bailout’s extraordinary circumstances provide the Government an opportunity to implement a radical alternative to a conventional bank privatisation.

Any privatisation must meet the twin goals of recouping the taxpayers’ investment in full, and equitably sharing the opportunity to profit from RBS’ and Lloyds’ future profits and growth in value.

In my pamphlet, I propose that the Government-owned bank shares are distributed to the British public, with no cash required of them up front. In order for the Government to recoup the public’s investment that rescued the banks, Portman Capital have developed a model that guarantees a fixed minimum price – known as the “Floor Price” – for HM Treasury when individuals sell their shares, so citizens will benefit when the share price increases above the Floor Price.

For example, if each share is worth 100p when you are given it and the floor price is set at 85p, you would make 15p per share. Basically you keep anything above the floor price, which the Government will set when they distribute shares to the public. The floor price will be based on the prevailing market price, but will be at least the 51p per share we paid for RBS and the 74p per share we paid for Lloyds.

By design, this proposal is guaranteed to recoup the entirety of the Government’s 2008 investment in RBS and Lloyds. It would be considerably cheaper than a conventional privatisation, and it would avoid the unfortunate experience of the US government’s sale of half their General Motors’ stake, (the US government expects to lose at least $10bn from the sale).

Overall, this innovative plan gets the public’s investment back, is inclusive and equitable for the British people, and would allow them to benefit from any increased value in their banks.

Stephen Williams is a Lib Dem MP who has written a new pamphlet, Getting Your Share: Giving the Banks back to the People.