Getting Your Share of the Banks – My View


Tuesday, March 8th, 2011. 12:14am


Stephen Williams MP, Liberal Democrat Treasury Spokeman

Stephen Williams MP, Liberal Democrat Treasury Spokeman

Stephen Williams MP has today published an utterly bonkers proposal to distribute the UK state’s shareholding in the Royal Bank of Scotland and Lloyds Banking Group to all UK adults.

I was planning to comment on his blog article in which he describes his proposals, but the comments system appears to be broken; there being only four comments on something so high-profile indicates I’m probably not the only one whose views have not been posted.

The comment I intended to post read:

Its interesting to see that Mr Williams MP sees the UK state as something different from everyone in the UK acting together. I find this disconcerting and worrying, from someone running the country. We, the citizens of the UK own the state’s share in the banks if we do so as individuals or together as the state.

There are many advantages of pooling the citizen’s holding together. One is that together we all, though the government, have greater influence on the banks, letting us push them to work in our interests; it also allows us to democratically decide where any profits from rises in the shares’ value ought be directed. Those who need help most, or areas which are deemed good investments can get the money rather than, as Mr Williams is proposing, distributing it to everyone including those who neither need nor want it. I thought targeting the state’s resources where they were needed most was a key Liberal Democrat policy, they appear to have forgotten that here.

In order to benefit into the future what the state needs to do is not sell all its shares as soon as it can get its money back. Of course profiting from the transaction in the long term ought be the aim. If the shareholding is split up or not doesn’t affect this.

Cambridge MP Julian Huppert Supports Williams’

Following the announcement I tweeted saying:

MT @swilliamsmp: Get Your share of the Banks http://wp.me/p11E7y-2B <- @JulianHuppert How's this fit with LibDem favourite: "progressive"?

Julian Huppert replied:

@RTaylorUK er … That is progressive!

I also tweeted:

RT @SWilliamsMP: Getting Your share of the Banks http://wp.me/p11E7y-2B <-Utterly Bonkers. Gov ought use profits to benefit everyone.

Julian Huppert responded even though I didn’t mention him in the tweet, which is pretty impressive. It should be this easy for everyone to share their views with their elected representatives, he said:

@RTaylorUK that’s precisely what that would be doing …

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12 comments/updates on “Getting Your Share of the Banks – My View

  1. Andrew Bower

    Sorry Richard, I think the state keeping hold of the banks’ shares is more bonkers. And if these days we are supposed to reduce every financial policy to this childishly simplistic progressive vs regressive classification then bear in mind that the proposed distribution would be to all electors, not just those who pay the tax that is financing the original purchase of the shares.

    The full pamphlet is worth reading. It may not turn out to be the right answer but I think the principle is attractive.

    A good nominee scheme set up for this purpose with helpful publicity could help with some of the problems. Don’t forget Child Trust Funds have been forced on the population at large already.

  2. Richard Taylor Article author

    Andrew,

    I thought about putting a line in saying I don’t think the state ought keep a stake in the banks long-term; but didn’t think I needed to. Clearly I did!

    There’s a difference between not selling off the nation’s shareholding as soon as we think we can re-coup what’s been spent, selling off slowly over a longer period aiming to make more profit than simply re-couping costs, and keeping a stake in the banks indefinitely. I’m suggesting we take neither extreme and go for something in the middle.

    I’m not the one reducing things to “progressive” vs not; that’s the Lib Dems. The Lib Dems get votes in Cambridge (and they’re in Government) so arguing against them when they’ve got something wrong is important, its hard to do that without using their language.

    I have read the pamphlet, it has clearly had good people feeding ideas into it, the problems the Government will have getting the right price for its shares are rightly highlighted; that’s one of the main serious economic drivers for the proposal. There’s also the political, more abstract, attempt to placate the masses / make people feel good.

    Also, in response to your last point: Child Trust Funds have been scrapped; and I think that was the right thing to do.

  3. Andrew Bower

    Hi Richard,

    I appreciated the context in which you referred to the term ‘progressive’ – have to admit I do them same myself but would love to move the terms of the debate.

    I also appreciate you don’t favour long term ownership of the banks by the state, although I’m not sure I trust any government to control the holdings in our best interests even in the short term!

    I would not like such a return of assets to taxpayers to be handled as a bribe but as a return of control – I really do like the idea of a nation of shareholders. The left would absolutely hate it – just as they try to tie the wealthy into the welfare state with universal benefits (hence their outcry over child benefit) this would give everyone a more obvious stake in capitalism.

    Of course there are lots of potential problems – one shouldn’t get carried away in the ideology of it all!

  4. Richard Taylor Article author

    I too think a nation of shareholders would be a good thing. I think that ought be based on people choosing themselves to buy shares in companies they understand as investments for their own futures.

    The government’s role is in things like regulation, and ensuring there’s an efficient market, not giving away shares to individuals.

  5. Andrew Bower

    Yes, I would agree with you on that but the concept that the public already own “the” banks is already well ingrained in the population and in that context it seems appropriate to realise that ‘ownership’ in a creative way.

    It would certainly be a mistake if it were billed as ‘giving away’ the shares and a government information campaign ought to be honest about what it is and is not doing by properly explaining the ‘floor price’.

  6. Steve Tierney

    Good god, there must be something wrong with me. But I can see a certain charm in this idea.

    Look – government has no money of its own. It just has OUR money, or money it has borrowed against all of our future wealth. Or money it has printed – devalueing all of our current wealth.

    So the enormous cost of the bank bailouts has been spread across us all, both now and in the future.

    Consequently, since we all own a piece of the banks, there is a certain wry sense to giving us all a bit of it back.

    Governments are notoriously bad at managing businesses. The sooner the government is out of the banks – the better. If this were to come about along with an immense public ownership of the shares then I rather like that result. It’d certainly stop some of the banker bashing if we were ALL bank shareholders. And that would be a useful development.

    Usually, the Lib Dems would be on about giving the shares only to “people who need them.” Never mind that it is everyone who has been tapped to pay for them. This unique and unusual brush with reality is welcome. If its not “progressive” (that most abused and flexible of adjectives) then so much the better. I’d rather it was fair. In the true sense of the word.

    This sort of policy would have many potential ramifications. I haven’t thought it all through and could easily change my mind later when the possible consequences sink in. But as an off-the-cuff, instant response. I quite like it.

    And I never like much of ANYthing Julian Huppert says!

  7. wab

    It would be far better to pay down some of the national debt than to bribe people with shares. Giving us shares would just mean that the government would have to increase tax in compensation, and the main beneficiaries of this would be share dealers making commission from all the people selling their shares.

    Why is “a nation of shareholders” allegedly a “good thing”? I had some shares from some building society which I didn’t ask for and I did nothing with until the (then) bank went bust. It did not make me a better or more informed citizen, being given all the shares “for free”. If I wanted to invest in some company or other then I would do so. Being given shares in an arbitrary company that I know nothing about is hardly a lesson in capitalism.

    Or course most of us are indirectly shareholders via pension schemes. But I’d rather let someone else (hopefully a professional) worry about how to invest that money. I have better things to do with my life than pay attention to the stock market 24 hours a day, constantly worrying if I should buy or sell.

  8. wab

    PS: “the main beneficiaries of this” should say “the main beneficiaries of this scheme” (i.e. giving shares away to the public)

  9. wab

    I have read (enough of) the pamphlet and you do not address my questions at all, in particular about why you (presumably) believe it is a good thing that we are shareholders in these banks.

    I would bet that the administrative cost, for example just determining exactly who ends up on the magic eligibility list, far outweighs any alleged benefit. He gives no estimate of costs.

    And there will be arbitrary winners and losers depending on who exactly makes it onto the eligibility list. So he suggests using the electoral roll as a “starting point”, somehow magically cleaned up.

    If you are abroad for a year on business you will presumably lose out. And foreigners (e.g. EU citizens) who live and work and pay tax here would be excluded, even if they have been resident for decades. And if you are 18 one day too late you will lose out.

  10. Andrew Bower

    Wab, I agree with all your concerns in your latest comment – these are some of the big flaws in the proposal, it just seemed that the concerns in your earlier comment were answered in the pamphlet.

    I don’t think it is at all good that we are enforced owners of some banks. Given that we are, however, I would rather handle my own holding myself rather than let the government dispose of it incompetently.

    I am not blind to the problems with the proposal. It would be a rather wacky financial instrument that the government would be distributing and I’m not at all certain it would work. But the principle I like.

    I don’t think the slightly emotive talk about ‘bribing’ with ‘giveaway shares’ is helpful because it doesn’t accurately reflect the proposal.

    Issues such as trading costs etc. are due more creative consideration than some of the scepticism that is being shown as there would be scope to create a nominee and trading scheme for these released shares that would provide its users with an economical, easy-to-use scheme benefitting from economies of scale.

  11. wab

    I do consider this a bribe of the electorate, in the same way that I thought the Child Trust Fund was a bribe of those members of the electorate with (suitably aged) children. Well, the bribe here is a bit more subtle, because of the payback of the floor price when the shares are sold.

    Also note that: “An essential element of the model is to minimise the incentive for an individual to immediately dispose of their shares.”

    Let’s say the government ultimately wants 66 billion for its shares (ignoring that we should want more to make up for inflation and for the other costs incurred). That means about 50 billion (so 3/4 of 66) in this give-away. Let’s say that half the country holds onto their shares for 10 years (as an example).

    That means the government has 25 billion pounds it needs to meanwhile finance. And unless the floor price is indexed by inflation (the document does not say) then in effect the taxpayer will have to stump up even more cash to make up for these long-term holdings.

    Also, there is the small issue of recovering the floor price when shares are sold. The pamphlet quaintly states: “Each time a disposal is made the Treasury would receive the floor price.”

    Well, that would obviously apply only to the first time a share is sold. So someone has to police absolutely every sale of every one of these shares, for decades to come. The administration costs would beggar belief. My guess is that in the end many people would be able to cheat the system and pay nothing back.

    I also pity the poor banks who would have tens of millions of shareholders. How much would that cost them just to send out the usual form letters every year?

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