EXCITEMENT is mounting in anticipation of a possible sale of the Government’s stakes in Royal Bank of Scotland and Lloyds Banking Group.
A couple of think- tanks have put forward radical ideas (aren’t all think-tank ideas radical?) for how the Government can best dispose of the shares.
Part of the problem is that there are an awful lot of nationalised bank shares. Selling them all at the same time would have the effect of dampening the share price, thereby reducing the return to the Government.
One suggestion to get round this problem comes from the right- wing think-tank Centre for Policy Studies. In a study chaired by Conservative peer Lord Saatchi, the think-tank suggests granting the shares to all taxpayers. This would have the effect of placing billions of shares in the hands of millions of small shareholders, who would then release them to the market when it suited them over many years. Some would undoubtedly hold onto them for decades.
The CPS estimates the share giveaway would be worth up to £1,000 per person. Those receiving the shares would receive any dividends in the normal way, but, should they decide to sell their shares, the Treasury would recoup from the proceeds the original cost of buying the shares in the bank bail-outs, which was 51p a share for RBS and 74p for Lloyds.
Lord Saatchi, a former Conservative Party co-chairman, said: “We gave the Government our money to invest in the banks. If there is a profit on our investment, that is our profit.”
The proposal is similar to one tabled in March by Centre Forum, the Liberal Democrat think- tank.
The problem with Lord Saatchi’s proposal is that any gain in the capital value of the shares would end up in the hands of those shareholders, not the Government, which could undoubtedly use the money to reduce Britain’s trillion pounds of national debt, or build a few more schools and hospitals.
One advantage of Lord Saatchi’s proposal is that the City will miss out on an estimated £1bn in fees that would otherwise accrue from the traditional sale route. The corporate finance advisers, bankers, lawyers, accountants, underwriters and brokers promoting the deal would have to find some other way of earning a crust.
INFLATION continues to soar, according to figures out yesterday.
I say “soar”, but those who remember the 1970s may feel that, at 4.5%, the Consumer Price Index remains firmly under control.
Nevertheless, it remains stubbornly above the Government’s upper target limit of 2% and heading in the wrong direction. It has led Bank of England governor Mervyn King to warn against premature action to raise interest rates. Early action could harm the recovery of the UK economy.
What puzzles me is why it is that the UK seems so out of kilter with the other major economies in Europe. Despite being exposed to similar global sources of inflationary pressures such as oil, commodity and food price rises, their inflation rates remain much lower and they are enjoying significantly better economic growth rates.
One obvious difference between the UK and the rest of Europe is the hike at the start of the year in our VAT rate from 17.5% to 20%.
The Governor is right. The UK economy is precarious and nothing should be done to jeopardise its tentative growth path. Britain’s bank rate shouldn’t rise for many months yet.
