You read it here first!. I support the CPS scheme for transfer of bank shares to the public in the UK, and am glad Mr Clegg has joined the supporters list. I raised it again in Treasury Questions this week.
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You read it here first!. I support the CPS scheme for transfer of bank shares to the public in the UK, and am glad Mr Clegg has joined the supporters list. I raised it again in Treasury Questions this week.
Comments are closed.
June 23, 2011
The administration class will love this.
I have shares in a couple of companies, and each year I get a thick annual report, voting papers for the AGM and other bunf! Think of all the paperwork with 40 million shareholders. A really “green” solution! And I suspect that a majority of the population would have no clue what to do with the shares when they get them.
Whilst it sounds a good idea, from a practical point of view, it would be far simpler for the government to sell the shares and use the money to give a one time increase in the personal tax allowance for all taxpayers. At least more of the money would go back to those who had been forced to pay for the shares in the first place.
On this occasion I must disagree with you; possibly a good idea but totally impractical.
June 23, 2011
No a good idea and good for the banks to relate to their customers/sharholders – and people perhaps to get something back after the Brown/bank mugging. The system of reports and company law (perhaps also) just needs changing – so no need to mail huge reports should just put it all on email or the internet.
Another side benefit to all public companies perhaps. Get on with it and do it now. If people really need paper reports let them pay for them – or pick them up at the bank
June 23, 2011
Yes, I agree with you. The British expect far too many handouts already, and I think John’s political instincts are mistakenly leading him in the populist direction on this one. BT, BA, BAA, BG, etc., etc., were all the result of nationalised companies that were amalgamated, reformed, rebranded, and then sold off to the public who had originally paid for their nationalisation (though maybe to later generations of them). That worked very well, as long as the reforms to return them to profitability were adequate and the sale date was chosen wisely (remember the BP fiasco?). The banks concerned need in many cases further rationalisation or they will probably end up back in the ditch and the “owners” will now have to bail them out again. And is the current market, artificially boosted by QE on both sides of the Pond, really the wisest time to sell these assets? Sorry John, but I disagree with you on this matter.
June 23, 2011
One of the reasons people expect so many hand outs is that they have paid so much in tax in the first place so they rightly expect something back and the taxpayers usually do not get very much of value back at all.
It may be a “populist direction” but anything which get the country out of the Socialist Cameron/Clegg/BBC ever bigger state thinking the better. Anyone owning it them would be better than the government doing so.
June 23, 2011
English Pensioner
Fully agree with your comments, an absolute and very expensive administrative nightmare.
It may bring the Post Office more profit though, carting all these annual reports all around the country most of which will be found in the household recycling bins the next day.
Agree better use would be to use the money to increase the personal tax threshold for all taxpayers, who after all have bailed out these banks and own the shares (as taxpayer nominees) at present.
Giving shares (which the taxpayer has funded) to everyone, means non taxpayers get to benefit as well.
Another policy, another nail in the coffin for “doing the right thing” and working.
Yes fully aware non taxpayers pay tax (Vat, fuel duty Etc) but am sure you get my drift.
Think if you wait for the fine detail, it will be profit for the individual shareholders, but only after the government get their share price paid, back first. So its peanuts all round after years of waiting, and years of administrative expense.
Not with you or Clegg on this one John.
June 23, 2011
Couldn’t agree more. Up to £250 million wasted.
June 23, 2011
I agree with English Pensioner. This is just a gimmick and a a non-job creation scheme.
The government should hold the shares, and use the shareholding to vote down any excessive pay, bonus and share option awards on behalf of Joe Public.
If at some point the share values pick up, then the government should sell off as many shares as the market will bear without depressing the price, i.e. the exact opposite of the way that “Mr. Goldfinger” Brown handled the sell off of our gold reserves.
June 23, 2011
Do you seriously believe that if the money goes into the Government’s maw the taxpayer will benefit?
I do not, and giving the public true ownership ( i.e. not state ownership-which is what is usually meant by the phrase public ownership) is by far the best thing to do.
With regard to the admin side of the proposal, this can be cut down by NOT sending Annual Reports to all shareholders but merely publishing it on the net. Those who are interested will look, those who aren’t, won’t.
Some will, no doubt, want to sell their shares quickly, but this will probably not be many becuase the profit will be small.
After all, building societies used to have members (and lots of them) before they decided that they were financial powerhouses and overreached themselves.
June 23, 2011
I disagree also, I’d rather any returns were used to reduce the deficit, debt and/or inflation.
June 23, 2011
Totally agree with English Pensioner, sorry John. In fact I would feel quite annoyed if this went ahead and recipients who have been on permanent benefits (I read yesterday that 100,000 people that left school in 1997 haven’t done a day’s work yet) get the same shares, how do you justify that? Can you change my mind?
June 27, 2011
Now there’s a good topic for disscusion:
“100,000 people that left school in 1997 haven’t done a day’s work yet”.
So want questions would you ask before you start imposing your ideas on them? Here’s the not so popular response, just in case the point is not made!
Is there any work for them? Not within the Regions there isn’t! And if there is, do THEY see it as a vaible long term future? If they can only earn minimum wage; Would you be bothered? They would not earn enough to pay for a Family, a Mortgage, or startup capital! Etc …
There is obviously a problem.
There must be something wrong if people are choosing to stay on the dole, rather than making a life for themselves!
Only idiots generalise about how lazy they are just so they can force them into what they see as an answer. And No, they are not going to focus on what other people think if they can’t see how they can take what ever opportunity life affords them! There are more opportunities for self employment then the “World of Work”! But very limited access to collateral.
June 23, 2011
Perhaps you would like to explain how it would work and why you think it is better than the government selling the banks and using all the money to reduce the deficit and debt.
June 23, 2011
As one who saw my Lloyds Bank shares plummet when Brown foisted HBOS on to it (playing on the credulity and hubris of the then Chairman), I would hope that when the government’s shares are redistributed, the original shareholders might receive some preferred treatment.
June 23, 2011
0. WHY?
1. How does this maximise Govt revenue to tackle the debt? Does this send a serious debt tackling signal to the markets?
2. Should squandering over consuming debtors be rewarded to the same level as virtuous savers who have already suffered the ‘theft’ of the low exchange rate and high inflation policy being pusued by the Govt & BoE? Prizes for all – how very errrr socialist of the CPS? What cultural sign does this give – however you behave you’ll be rewarded?
3. Is this simply political face saving because of investment banking fees?
June 23, 2011
It is clear that the government and its advisors are getting rattled by the extent of the banks exposures and the governments implicit need to stand behind the liabilities.
What I wonder are these shares worth? how much of their liabilities are backed by good assets? What is the extent of their exposure to over-indebted Euro countries: not just state obligations but commercial obligations as well.
No doubt the government wish to get rid of this problem and no doubt they will find the easiest way is to “gift” it to the people. Far better and effective than trying to flush the shares down the proverbial.
Does it not look suspicious to you that whenever there looks like there might be value to these entities, such as Northern Rock and Bradford & Bingley the Government fail to pass any benefit directly to the public?
Why be fooled by the largess being shown by this foolish and shallow posturing little man: he and his master are most unlikely to get away with this little scam in time to avoid disaster
June 23, 2011
I’m with the English Pensioner on this:
At first I was like Yey!, but the practicalities are against you.
On the other hand, it would probably persuade some people to get involved in owning shares and so from that perspective, you should get the FTSE 250 companies paying for the admin! 🙂
June 23, 2011
I don’t want shares.
If I did, then I would go out and buy some.
This is forcefully taking money from me, using it to buy shares, and giving me those shares back.
Also, I havent a friggen clue about banks shares, the banking industry, what the hell am I supposed to do with them.
Stupid stupid idea.
Sell the shares on the market, make sure they are sold at a level that will cover the taxpayer bunge bailout (and if the learned people parliment can’t do that, why they hell give them to joe public?). Use that money to pay back some public debt/deficit.
June 23, 2011
I hear that the scheme will cost over £250 million, and presumably by distributing these shares it robs the treasury of the money and distracts attention away from the fact that taxes were “increased to pay for the bail out” and thus enables the Treasury to maintain tax and spend rather than reducing the tax burden.
We also need detail about numbers of shares, costs for trading etc, and also whether or not HMRC are simply transferring liability from the state to the individual.
June 23, 2011
I am not sure I do. I’d rather that the damn’ things were sold for cash and that money used to pay down the state debt, which I pay for a well. Asset sales always follow fiscal folly – as for individuals so for nations.
June 23, 2011
A silly gimmick.
When is Clegg going to do something about the piles of red tape he promised to cut.
Answer: Never
June 23, 2011
Indeed still weaving vastly more of it!
June 23, 2011
John, I agree in priciple but the implementation must surely be a horrendous task riddled with the opportunity for error and perhaps fraud. It involves I believe setting up an account for 46 million people, at which the mind boggles! Who, exaclty, is to get these shares? Everyone, including the economic migrant community? Just those on the electoral roll, or just those who are known to HMRC?
Forgive my sceptisim, but new software suite development – 1 year; development cost – probably 3 times original estimate; implementation timescale – 3 years; Cost to the taxpayer for this and staff – unknown. Truly, a mind-blowing exercise which will demand who knows how many time, cost, additional people and systems to bring this noble concept to fruition.
June 23, 2011
I am with the Nationwide and every year we get a load of bumf too. The good thing is that when Mr Brown faced up to saving the world and my son rang up from Asia frantic, I was able to reassure him.
The government must unload the banks immediately. It is totally the wrong organisation to deal with international finance. Totally.
June 23, 2011
I thought Mr Redwood was desperate to sell off the banks to get the national debt down. If (say) half the people who get shares hold onto them for 10 or 20 years, that means that portion of the national debt will remain unpaid. And of course until the share price recovers to above the magic floor price (assuming it ever does) then none of the money could possibly be recovered for the taxpayer. And until the share price recovers to way above the magic floor price (assuming it ever does) nobody in their right mind would sell the shares because that would be worth so little.
This proposal is the worst sort of government gimmick. One expects this kind of gimmick from Gordon Brown (and Clegg). Hopefully most Tories have better sense.
Reply: The transfer of shares takes state debt down by 90% of GDP at a stroke.
June 23, 2011
what is this? is this the scheme again whereby the ‘shares’ only have intrinsic value when above the government’s buy in price? Generally speaking iissued share capital is a liability in a company’s a/cs therfore an asset in the owners’ a/cs who by definition have limited liability.
June 24, 2011
Reply:
“The transfer of shares takes state debt down by 90% of GDP at a stroke”
It may take it out of the state books, but theliability does not vanish, it is simply transfered directly to the general public.
What in effect is happening is that the state is giving the general public a paper loss (a liability) which they cannot get rid of, because the shares will never have any value, until (if ever) they get above the government bailout price.
Given the transaction cost of selling these small share holdings, it will be decades before they have any meaningful value, and if in the meantime the banks wish to raise more capital with a rights issue, then that value of share becomes diluted again, unless the shareholders can afford, or wishes to invest further money.
Given that the state will not get its money back until the shares are sold on by the general public (when the state then take there bail out value) what happens if the general public do not sell because they feel the share holdng is too small to bother with, does the state then wait forever/never for its bailout cost from that share?
The simple solution is for the government to hang onto its share holding, and sell them to interested investors when it feels the time is right. Then take the profit or loss at the time.
The sad fact is the Government should never have bought bank shares in the first place.
The proposed scheme is really just creating accounting, and smoke and mirrors, dressing up a liability as an investment, something the banks were guilty of at the time, when buying worthless investments, which got us in this mess in the first place.
Keeping track and administering this mess would cost a fortune, reducing the deficit or raising tax thresholds, costs zero in administration.
June 24, 2011
JR: “The transfer of shares takes state debt down by 90% of GDP at a stroke.”
Do you mean *to* 90% of GDP?
reply: No, it takes it down from 150% to 60%
June 24, 2011
Wab ,
I must admit “Gimmick” was the first word that came into my head .
Suppose this is a debt-equity swap , sort of .
June 23, 2011
I really do not understand this. Are we now so rich and unindebted that we can afford to just give away national assets? Why would we not sell these shares and use the money to reduce debt? Could you offer a little more insight as to why you think this is such a brilliant idea?
Reply: My former post explained it. It transfers all the bank risk away from the governmetn balance sheet, and removes the large share overhang from the market. The government gets back itgs purchase price when people sell.
June 23, 2011
Away from the government and onto the taxpayers. Thanks!
The liability doesn’t move until all shares are sold by the taxpayers, i.e. if the banks go bust the government still gets caned and taxpayers feel they have been given a pup. If the price goes up the deficit in part created by HMG support and guarantees for the banks remains unaided.
All you have is a lot of bureaucracy. Libdem nutty idea.
Makes no sense to me.
June 24, 2011
JR, what happens to the B Shares? The government has 51 billion of these for which they paid 50p each. If the banks don’t buy them back or the government opts to convert to A shares, there is still a large market overhang. You have a better chance of a profit if you just bought these shares at last nights prices from a broker rather than 50p from the government. Keep in mind you have already paid for these shares once via your taxes.
June 23, 2011
Why don’t we just hand out bundles of £20 notes on January 1st 2015? Or better still, at the polling station door on May 1st?
We could secure the bundles with yellow and blue bands which have a (officially approved, natch) photo of Dave grinning on one side and Nick smirking on the other?
Agree with English Pensioners comment, use the money to either reverse one of the recent tax rises or stop a future one from happening, overtly bribing voters in this manner is New Labour. Or do I mean Modern Conservativism? Or Unmasked Lib Dem?
It’s so difficult for outsiders to tell the different factions apart.
June 23, 2011
I hope the idea behind this isn’t to require that everyone will need to do a tax return to report their dividends and sales of the shares for CGT.
Incidentally, are the Lib Dems planning a taxx break for multi-million pound houses by bringing them into the CGT net? Sell your house at a loss, and offset against other profits.
June 23, 2011
Have you forgotten we have a deficit? It is stupid to be looking to give away shares when that money should be used to pay off some debt.
Reply: The scheme entails people giving back to the government the government’s price of the shares, on sale by the new owner.
June 23, 2011
Is it aganist thge law for the tax payers to make a profit out of it, so cutting into our debit by a little more?
The scheme you out line sounds so bureacratic it will be impossible to manage.
The best return for people would be to get the government debt off out backs, the sooner it is done the better.
June 23, 2011
Large companies will buy up as many shares as possible. Look at SID, British Gas, now owned by Santandare in Spain. Its just a way of selling the banks to overseas companies.
Please make the government hold 51% then at least we keep control.
Most european countries won’t allow more than 40% of a company to be sold abroad.
So, for instance, whilst France owns Uk electricity we can’t buy control of any French electricity.
June 23, 2011
John, you’ll have to do a more detailed post on this because people don’t seem to get it, i.e. why it reduces the debt, the “clawback” on sale of the shares etc.
Whilst I do not support Clegg, this is a good idea, financially, politically and morally.
It seems like practical conservatism of the best sort. Selling the shares and the government keeping the money seems like, whats the word, oh yes-socialism.
This idea has to be sold hard as a true conservative measure, which it is.
June 23, 2011
A good idea – and well done for promoting it! It would be great to see share owning as something to be a part of the public sector pensions remuneration. I feel too many policy makers have no skin in the private sector. Tony Benn once joked on any questions about the ridicuousness of having the FTSE Index at the end of bulltins…and the audience agreed. It would be better if the whole population were concerned about how our businesses perform….
June 23, 2011
It’s the most stupid idea I have ever heard. The shares should be sold to recover the money that was spent acquiring them in the first place when it is profitable to do so. Spreading the ownership of the shares so widely would give free reign to the Directors of the Company to act as they please, as noone would be able to hold them to account.
June 23, 2011
It seems a strange idea that all citizens will receive shares, irrespective of whether they pay tax on balance, or not. Also, if I can sell shares for a small fixed fee in any volume through Lloyds, why should the government have to pay the city a huge fee to the city slickers in order to sell its shares in -er- Lloyds?
June 23, 2011
Actually I didn’t read it here first; I read it on Conservativehome first:
http://conservativehome.blogs.com/platform/2011/05/the-cpsthinktanks-ryancps-getting-our-fair-shares-from-the-banks.html
I said then:
“I’ve read this several times, and I still can’t avoid the conclusion that this would be a complex, expensive and inherently unworkable scheme.”
and I still think that.
June 23, 2011
Sorry Mr R – I do not understand how giving me Northern Rock shares reduces the Debt burden and also when I sell those shares the Government gets its (the tax payers) money back?
You are usually as clear as a bell but you have got me well confused this time.
June 23, 2011
Reminds me a bit of the BT furore.
Converting a quasi-government run thing into a private business didn’t actually result in individual shareholders having more say.
At the margins there was greater competition but other providers are still, 27 years on, beholden to BT for line access etc.
And did many individual shareholders really make money? Really?
I think the bureaucracy of this one outweighs any possible benefits.
June 23, 2011
Tax payers may have bailed out the banks but only by taking on public debt that will take a generation or so to pay off. In no sense have tax payers yet paid for that bail out. To gift these shares to current tax payers, those that benefitted from the good times and in some cases were responsible for the problems, while expecting new tax payers to pick up the debts absolutely stinks. Use the money to pay down the debts.
June 23, 2011
I totally oppose this hairbrained scheme.
Joe Public is offered a sop of a few hundred quid, while the banks go into foreign ownership, probably China. The Chinese will be using British money paid as interest to the money loaned by China to the UK to buy British banks.
Therefore, the indebted British will be using their own cash to reliquish ownership of their banks to China.
However, I guarantee that the Scottish parts of RBS and the Lloyds Group will pass back into Scottish ownership as yet another bribe to Scotland.
June 23, 2011
So how do you distribute profits when people will argue you should just sell the shares and spend it on hospitals ?
What about premium bonds? What about a bank that runs as a role model ?
You’re basically creating a company whose directors first priority is not their share holders? So who or what is their first priority? Lots of questions.
June 24, 2011
How about restricting the handout to taxpayers?
June 24, 2011
On first consideration, this looks like a very poor idea – creating a possible nightmare for the administration of the eventual share sales to claim back the state’s original stake.
The problem is, I have no clue what advantages this offers the public or the government or the banks themselves. Could you please post a detailed explanation as to why you think this work John, would be very interested to hear some detail.
June 24, 2011
Alteranatively;
Use the shares as capital for a new Bank? Say, RIB – Royal Investment Bank, specialising in Project Finance for technology startup’s!
Maybe not good enough for Tier 1 capital but they could then be kept for a longer period, until things get better. Besides, the Government has borrowed to step in so RIB could take that borrowing off it’s books and take the upside?
June 25, 2011
John – you need to explain this properly. Can the new holders of the shares sell them at market price? If so (a) what happens to the sale price and (b) do you have any idea how much the banks’ shares will collapse if millions of smallholders all look to sell over a short timeframe? I wouldn’t mind being a cash buyer on the other end of that 75%(?) dip. You make reference to the government ‘getting it’s money back’? How can that be if the shares are given away and sold by the new owners? Are you really saying that the new owners cannot sell until the market price reaches the price the government paid (which may never happen – look at the Nikkei for the last 25 years), and then the the new owner can only keep the difference? If so, that is the one of the most stupid ideas I have ever seen (and I can think of several ways off the top of my head to avoid that rule and effect a sale regardless). Lastly your comment above to the effect of the government reducing its debt ratio from 150% to 60% is simply not understood. How can giving away assets (tradeable shares) in return for nothing reduce government borrowing?
And as you well know, shareholders are not responsible for a company’s debt, other than to the extent the company can go bust and they lose the value of their shares. If a TBTF bank goes under again in the next few years, the government (taxpayer) will give them new bailout funds, and increase national debt, but the shareholders will never be on the hook for the bank’s debt.
You need to be a lot clearer about what is proposed. While I would love to hear your reply, the administrative burden of sorting this out would certainly destroy a large part of whatever value is left in these shares, assuming you could produce a set of eligility rules. Just try posting those here for fun to see what the collective readership identifies in terms of unfairness, loopholes and unintended consequenses. [Hint: if a proposed policy causes collective guffaws of laughter, it may be wise to re-think.]
Reply: Following free transfer of title to the shares no recipient would be able to sell them below the cost to the government. On sale the government’s cost is taken by the government and the profit sent to the shareholder. This prevents the shares acting an overhang on the market at low prices, whcih it does today with the gov ernment sitting there as a potential seller of the lot. I did set out the whole CPS scheme a couple of months ago when it was first published.
June 25, 2011
John – thank you for your reply (even though the thread is a little old). It does clarify. Two main points remain unanswered:
1. How does the transer of legal title in the shares to people who are not allowed to sell them (until some uncertain point in the future) reduce government debt by a single pound? The debt reduction would surely be contingent, namely on a future increase in bank share prices coupled with individuals actually selling them and thus remitting money to the treasury.
2. What are the proposed eligibility criteria?
There is a broader political point about what the MSM will make of a “share giveaway” when people realise they are (currently) unsellable. Although I suspect you would never have voted for the bailout, at least in its current form, giving people the right to sell shares that may never vest is political dynamite in as much as it rams home what a bad deal government gets with its tax revenue.
I would genuinely be interested in your take on the two discrete points above.
A bit more convoluted, but how do you stop me going round the estates paying people ten cents on the dollar today for an assignment of their rights? I suspect there would be no shortage of sellers and some very bad press if it happened on a large scale.
Reply: The shares transfer so all the debt goes off the government’s balance sheet – that is the banks debt which is placed on the government’s account as owner. The government still has the smaller debt it incurred when buying the shares.
Whilst the shares transfer they would not be available to sell until there was a profit – the computer system for title would enable that control.
June 26, 2011
I don’t follow the logic here.
If the transfer of bank shares from the government to individuals would relieve the government of a large chunk of debt then surely liability for that chunk of debt must have been transferred to the individuals along with the shares?
In that case, would we be free to refuse the shares?
But if that liability is not to be transferred with the shares, then surely it remains with the government?
And why as a shareholder does the government even have this liability in the first place?
Reply: the liabilities are transferred, but they are limited to the capital already subscribed. The advantage of having it owned by the public rather than the government is that no-one supposes the public would put more money if the banks went wrong, whereas the governemnt would doubtless be a soft touch.
June 26, 2011
I find Mr Redwood’s reply contradictory. I banks need more capital, to fund expansion of lending or to make good unanticipated losses, they should first go to their shareholders. If RBS and Lloyds could not make a rights issue to shareholders they would have to go to government or to sell themselves to a rival from a more sensible country. Great solution.
Reply: My reply is not contradictory. All the time the state owns the banks their gross liabilities appear on the UK balance sheet. Let’s get them off.
June 27, 2011
Why not just sell UKFI to the public now, for cash, and cut the deficit too?
June 27, 2011
I still don’t understand it.
If one purpose of distributing the shares was to distribute any of the government’s liabilities then that would be wrong.