If the government offered you £1,000 worth of bank shares you’d bite their arm off wouldn’t you? A radical proposal suggests that taxpayers become stakeholders in banks – and sell their shares to make a profit.
Ok, it isn’t quite as simple as that, but broadly speaking that’s the gist of it.
In 2008 the UK taxpayer shouldered the risk of a £66 billion bailout of the RBS and Lloyds banking groups.
At the time they were flirting with all-out collapse and required this almost incomprehensibly large sum of money, one which realistically only a government could stump up. But what benefit has the taxpayer seen from that?
Time to repay the taxpayer?
Well of course the banking system didn’t collapse, and we could have found ourselves in a spot of bother if it had. But the public perception is that the banks have taken the bailout and there’s been little in the way of return on that investment.
This think tank proposal from the Centre for Policy Studies aims to redress the balance a little. It would see the government distribute the state-owned shares and would allow participating taxpayers to sell them once the market price had risen above what the government paid for them in 2008.
Hold your horses though; that doesn’t mean you pocket £1,000. The original value of the shares would return to the government’s coffers plus 18% Capital Gains Tax and we, the taxpayer, would get to keep anything on top of that.
This ensures that the Treasury gets the original investment back in time, and the taxpayers could see a tidy profit.
Will we get a fair share?
In theory, every taxpayer would benefit from the government selling its stake in the banks because there would be increased central spending capacity, but the think tank’s proposal would offer a more direct benefit.
There is also an argument that releasing the banks from state ownership would allow their value to appreciate more rapidly as the bank has more freedom to act.
But some might say that it was freedom to act that got the banks, and therefore the nation, into trouble in the first place. So is it such a good idea for government to relinquish control? And what if everyone decides to sell at once – wouldn’t that cause the share price to tumble?
On the whole, though, I think this is a pretty neat solution. We rightly feel aggrieved that the banks took a huge public payment and have given little back up to now. And who knows, this might begin the process of image-rehabilitation that the financial services sector so badly needs.
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