/ Money

Should taxpayers get a slice of the banks’ pie?

Slice of apple pie

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.

Comments
Guest
Stuart says:
18 May 2011

It’s a good idea so long as it’s just taxpayers who get the shares. They were the only ones contributing and should be the only ones getting a return. Nor should the distribution of shares be on a flat rate basis. Tax payments are not universal and not even, consequently any return should reflect the tax contribution made by each taxpayer in the relevant year. It will never happen.

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Guest

That’s an interesting approach, but as someone else has pointed to me out the cost of administering a scheme like this could prove a barrier as well and grading the returns would only increase that cost. I think the proposal was only to include taxpayers, rather than making it completely universal.

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Guest

When would the government get its money back, when the shares were sold to or by the taxpayer? If its to the taxpayer then only t hose that can afford to buy them could particiapte. If its by the taxpayer then if they aren’t sold then the money is not returned. Am I missing something but this also seems a nightmare to administer, the only way I can see to make this easy would be to force the sale of all the shares when the price reaches a certain point but then this would also cause a massive share price drop. Also how do you control the shares in relation to original (pre bailout) shares in the bank? I would presume that once they’re sold normal share rules would apply.

Overall it seems to be an idea that has a degree of PR fairness but zero practicality.

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Guest

You’re not wrong on the admin front, this would be a significant barrier I think. The plan would be that the shares are distributed at no cost to the taxpayer, and then the money is returned to the Treasury once they’re sold, so you’re right that the money would not all necessarily go back to the Treasury at one time. The question of these shares in relation to the original shares in the banks pre-2008 is an excellent one, I’m not sure how the two are related. Interestingly David Cameron did commit in PMQs yesterday to ‘looking at’ the proposal, but nothing more concrete.

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Guest

I thonk its a silly idea. The Government bought the banks for peanuts when the privately owned banks messed up by spending money it did not have but needed to raise to stop them collapsing. The Governemnt should wait for the bank shares it owns to go up and then progressively sell them to investors. The proceeds should be used to pay of the national debt or to build things like schools and hospitals.

Like many others I benefited personally by the sale of various mutual funds, gaining money I had little right to from this shallow behaviour by those who voted for demutualisation and those board memberswho could profit even more through the sale. I have no wish to see this happen again under the pretext of returning ownership to the taxpayer. The shares would be sold, the proceeds used to buy a holiday or a car, and the financial institutions would own the banks concerned. The public would gain no other benefit from this absurd idea.

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Guest

If I understand the proposal correctly this is a good idea.
If the Government waits for the share value to recover to a level which pays back the bail out a large sudden sell off would collapse the value, so that won’t work. By giving the shares to the tax payer the sell off will be much slower, much more staggered. The Government will stll collect the bail out value (when they’re sold) and the taxpayer gets any profit. Now that seems good to me bearing in mind the financial torment we’re currently putting up with, and will continue to put up with for some time.
The tax payer who won’t actually pay anything for the shares can’t lose, the Government eventually gets back the bail out money and the share price is unlikely to collapse, through sudden sales at least, so there should be a few quid coming in the taxpayers direction.

The only issue seems to be efficiently operating the scheme and the cost.
Something the Government won’t be very good at so that’s probably the weakness that will scupper the whole idea.

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Guest

Its typical of the greed of the public to want something for nothing. The public will not hang on to them they will sell them for a quick profit to brokers who will make even more money and the taxpayer will waste the money.

If you are worried about is obtaining a slow sell off, let the Government continue to own them but give the right to sell the shares to someone other than the public (eg to a wide range of charities). Then incentivise the nominees to sell them off more slowly by letting them keep 5% of the profit if they sell within 1 month, 10% after three months and 20% after six months etc. That way the Government gets to reduce the national debt even more and charities make some profit for making the decision on when to sell the shares. The taxpayer benefits from reduced taxes or better services rather than subsidising foreign holidays or new cars. Simples!

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Guest

What an inane question! Stop giving banks taxpayer’s money & close the really rotten banks down.
Why suggest anything else…….the UK banking system is totally corrupt so why would I want shares in it?.