Free shares for all


               A week ago  Monday I was the guest speaker at a Centre for Policy Studies lunch, talking about how to speed growth and create more jobs. Whilst I was there they showed me the work they have just published on returning the state owned bank shares to the public.

              They have come up with a good scheme. They propose that every taxpayer – or every voter – is given shares in Lloyds and RBS. Voters can only sell their shareholding once it has gone above the government’s original purchase price. On sale the government gets its money back, and the voter keeps the profit. Alternatively the voter can buy the share from the governemnt at the government’s original purchase price, and then subsequently keep all the money on sale. The government and the banks would  also able to raise more money from the markets at the original government purchase price, as the threat of a sale of shares at that price or lower is lifted by the transfer of the shares to new owners who cannot sell at those lower prices.

            I am keen for the government to start the process of selling its shares and assets in state owned banks. This scheme is an excellent way to line up  the interests of the banks and the taxpayers more closely. Taxpayers would become the owners of RBS and would be free to choose the management and fix their remuneration. They would take more pleasure in the banks returning to profit and in the shares going up in value if they benefitted directly from that process.

              It would still be possible to require the spin off of bank branches and loan assets to form more competitive banks in the UK retail banking market as well as doing this with the shares in the Groups concerned. We do need more and more competitive banks and must not lose this opportunity. One of the main problems impeding faster growth is the shortage of bank loans for many companies. Companies do need to borrow working capital and investment money fi they are to expand. More banks, with more bank capital, would mend this.


  1. D K McGregor
    May 27, 2011

    Sounds like a very good idea , will it see the light of day , though. Qui bono , not the usual suspects. However , it demonstrates your heart is in the right place.

  2. lifelogic
    May 27, 2011

    You say “Taxpayers would become the owners of RBS and would be free to choose the management and fix their remuneration”. But shareholder control of companies is so very weak under current company/employment laws. Rather like the voters control of MP’s and parliament the link is so absurdly weak it has little real effect. With the general public as shareholders the link is even weaker.

    Very many director’s have been able to run companies and shareholders funds totally into the ground while helping themselves to huge multi million pound salaries and pensions funds. Shareholder control of companies and control of directors remuneration and terms need to be strengthened to align this with shareholders interests for all companies.

    MPs have done much the same to the country.

    It could be however be a popular and sensible scheme with legal changes for some proper control of directors.

    1. lifelogic
      May 27, 2011

      Indeed aligning the interest of ministers and MPs with those of the general taxpayer and the interest of directors with those of the shareholders would be a very good thing.

      I still expect to see many more failed ministers and failed company directors to profit hugely from driving their country or companies into the ground as we have seen so often.

      1. Javelin
        May 28, 2011

        I’m not sure I believe the Conservatives are going to win the next election. I don’t think Labour or the Lib Dems are either. The fact we will be having very little growth by the next election and spending on Government has been going up will infuriate the tax payer. Even giving away shares is not going to help. I think the pollsters are asking the wrong questions. As I saud 6 months ago I think the UK us a very politically unstable place and the three big parties are not liked by the electorate.

    2. Damien
      May 27, 2011

      @Lifelogic I agree that the evidence indicates that the government has not been able to control the pay and bonuses of RBS and Lloyds so what chance would ordinary shareholders have?

  3. Mike Stallard
    May 27, 2011

    First of all, I totally agree that your consistent stand for the government to get out of banking is right.
    But, I must confess that I had to read para 2 several times to understand even a part of it. As Joe Average, I look round at my three next door neighbours (1970s trendy estate) and wonder if they are going to be interested at all and if they are interested, if they will be able to understand it. I suppose that the businesses follow the money and publicists will explain it clearly. Or not? They did when Mrs Thatcher invented Sid.

  4. lojolondon
    May 27, 2011

    Genius, John, pure genius. The state’s role is definitely not to own shares, especially majority shares in listed companies. I only want to ask why this brilliant scheme can’t be implemented really fast – like within one month?

  5. Javelin
    May 27, 2011

    John, you’re very optimistic in thinking growth will be easy to please. City AM puts a figure of 70% of GDP growth dependent on public and private sector borrowing. I reckoned on a 30% dependency with my pessimistic forecasts. Growth will only cOme when you have real education, with really good degrees and really good growth incentives like low corpirate tax and low red tape. We have none of these. The Labour Party wiped out growth for a generation. You must accept that it is going to take three terms of Government to get any real growth back in the UK economy – and that things are going to get alot worse before they get better – simply because people do NOT accept change until a crisis happens.

    1. lifelogic
      May 27, 2011

      I agree but no point in lots of people with good degrees all leaving the country because there are no longer any real jobs available in the UK due to:

      Over regulation, over taxation, too big a state at all levels, pointless support for the PIGS, mad expensive green energy, poor employment laws and the rest. Also a complete lack of vision from Cameron and the very real prospect of an even worse (if that is possible) Labour government from 2015 for five more years.

    2. JimF
      May 27, 2011

      And really good education won’t happen until whilst the route to selection in good state schools is lack of income, which appears to be government policy now, viz

      We really are in a vicious spiral in our education system, which needs unwinding back to about 1965.

    3. Mike Stallard
      May 27, 2011

      “You must accept that it is going to take three terms of Government to get any real growth back in the UK economy.”
      Afraid not. It doesn’t work like that. It is becoming increasingly obvious that, like Mr Blair’s reforms, Mr Cameron’s reforms, too, are being sacrificed for the goal of simply staying in power for its own sake.
      Unfortunately there isn’t just going to be a crisis: slow decline is soon accepted. Look at the wisdom of the EU or the slow decline in education or the slow decline in youthful employment.
      It is boiling the frog: you get used to things actually getting worse.
      Actually the crisis in the EU, education and youth employment has already happened and nobody gives a fig.

  6. Peter
    May 27, 2011

    Sounds good but I can see a few problems.
    First, as in the other comments I’m doubtful that it will ever happen. Far too egalitarian. Second, if the share price does improve, unlikely with sovereign debt about to default across Europe, it will only be by a small increment and transaction costs plus tax will dispose of any profit.
    Third, small shareholders have next to no power to influence big business so management is always chosen by large shareholders like pension funds and other banks. Hardly any advantage to taxpayers.
    If the banks had been allowed to collapse and the government had merely guaranteed deposits then we would now have a smaller, more diverse and more efficient banking sector at about a tenth of the cost of the present fiasco.

  7. waramess
    May 27, 2011

    Hmmmm, lets see: the government saves the banks with taxpayers money then proceeds to give the shares back to “voters”, whether they are taxpayers or not, (or, you say, to taxpayers, which would be impossible given the state of HMRC), which is no more than a redistribution of wealth, and then later “takes back” the original sum the shares cost them (us) leaving the voters, whether taxpayers or not with the profit, should it ever materialise?

    Sheer genius or abject lunacy?

    Free market solution: sell the shares now (after passing legislation to ensure we can effortlessly allow banks too go bust), take the loss and get on with the process of managing the economy.

    If the banks are then too weak to continue, appoint a receiver and allow the process of liquidation to commence.

    Are you really proposing that our government should be actively involved in the business of share speculation?

  8. Nick
    May 27, 2011

    It’s borrowed money. What about all the interest payments?

    Oh, I forgot. Politicians don’t do debt. It doesn’t exist. Its one of those fairy stories designed to scare the electorate.

    Meanwhile, the tooth fairy will come along and save us.

  9. Richard
    May 27, 2011

    An excellent idea which could be applied to many other organisations the Government owns, like the BBC for example.

  10. oldtimer
    May 27, 2011

    This is an interesting idea. One potential snag is inertia in the form of a reluctance, unwillingness of simply forgetfulness on the part on such voter shareholders to dispose of their shares. In such circumstances the government would not realise any cash return; over time the administration could become messy and expensive.

    Perhaps it needs further development to obviate such problems, eg excluding gains on such shares from CGT or a tax on dividends for a prescribed (5 year?) period, to encourage the development of an active market in such shares?

  11. wab
    May 27, 2011

    How much will this cost to administer? First of all their is the cost to the banks of having to send out tens of millions of letters to shareholders every year. That is not that bad, but unnecessary.

    There is also the more significant cost to someone (the government?) of having to police absolutely every sale of these shares for decades to come. So let’s say you get shares in 2012 and sell them in 2032. Someone in government in 2032 is going to have to ask for the money back that is owed. Meanwhile someone else will sell their shares in 2012 and in future those specific shares will be sold without the government having to get any part of the proceeds. So there will be two classes of shares. The complexity of this and the possibility of fraud beggars belief.

    And will the money owed be indexed somehow?

    And the disbursement of shares is bound to create arbitrary winners and losers. For example, if it is to “voters” then does that include citizens of the EU who work here and might have worked here for decades? And if you are born one day too late you will not get shares.

    The main beneficiaries of this scheme will be the financial services industry which will rake in huge amounts of commission from all the people selling their small amount of shares.

    Personally speaking, I don’t want shares in the banks. I don’t want to own shares in anything, except indirectly via my pension scheme, etc. Share buying and selling should be left to professionals, not amateurs like myself. I don’t grow my own food, make my own electricity or dig my own wells to get water. Why should I want to have the responsibility to figure out when to buy and sell shares?

    This scheme is just an attempt to bribe the electorate with its own money. The Child Trust Fund was similar, although at least the current government had the good sense to stop that.

  12. alan jutson
    May 27, 2011

    Whilst I appreciate that Governmnt needs to get out of its shareholding in corporations as rapidly as possible, you have to remember that RBS went bust or close to bust when in private share ownership, as did Northern Rock, TSB, HBOS, Bradford and Bingley.

    Shareholders can only do so much, and often work on historical facts (after the damage is done) the government own a majority shareholding in two banks at the moment, and do not seem to have much influence. So what chance a holder of a tiny percentage.

    The key to any succssful business, or school to that matter, is the ability of the Head man or woman in charge.

    Interesting article in todays Telegraph in so far as they report that the IMF may not stump up the next tranch of money originally promised for Greece, on account that they have not yet done enough themselves to solve their own problems and failed to reach set targets. IMF seem to suggest that the Europeans should step in and make up the difference.
    Seems that a few Countries in Europe may also be having second thoughts about coughing up. Those parliaments it is reported as not happy are Germany, Finland and the Netherlands.

    I wonder how the 267 MP’s who voted on Thursday will be feeling in a couple of months time.

  13. a-tracy
    May 27, 2011

    Individual small shareholders have no say in how our large companies spend our pension investments. By the time the Brittainia bamboozled everyone with their merger information into the Co-op (which I disagreed with) who could have stopped it and our returns being sliced and diced.

    Theo Paphitis’ new show The Next Big Thing is an excellent production, however, what it shows up is why the UK isn’t experiencing the growth we all desire. Two of the successful entrepreneurs/designers – a ceramicist and a fabric pattern creator were encouraged to manufacture in Italy. We have in Staffordshire a significant pottery producing area, for centuries it has been the powerhouse of pottery production in the UK and indeed in the world. Why aren’t we looking to our own craftsmen and women first, how can it be less costly to produce and transport from Italy – we really should be looking into that. I know we’re in a free market blah blah but do we even ask our own manufacturers to quote (I’d love to know – perhaps Theo could take it a stage further and look at this decision making process. I suppose it’s a bit more glamorous for the BBC and everyone to take a trip to Italy to look at the pot bank/silk mill there).

  14. StrongholdBarricades
    May 27, 2011

    How much would such a scheme cost the taxpayer?

    Surely simpler, cheaper and easier to bank any profit to HM treasury and reduce taxes for everyone, and then when the government dumps the stock it can do it with a “never again” to the banks

  15. grahams
    May 27, 2011

    What a fatuous scheme the CPS has come up with, assuming you have described it accurately. If it ever came before Parliament it would be laughed out within an hour.
    The free shares to all idea is ridiculously expensive, effectively creates a ceiling price and will not generate quick revenue unless there is a takeover bid. And Russian oligarchs can explain how to get round the “no sale” clause in no time. On the alternative wonderplan, why would genuine investors buy shares from the Government at above market price, other than to speculate on a quick foreign takeover bid. This sounds like a scam dreamed up by investment bankers.

    The simple way to cut the debt is to privatise UKFI intact, including the bank stakes, Northern Rock and the mortgage books, via a classic “Popular Capitalism” sale of at least 50 per cent to the public, with a proviso that no-one should own more than 5 per cent. That way, ordinary people, mainly British, would retain a big say in the future of their own banking system, however restructured. UKFI cash flow could finance rights issues if required. For reasons of competition, half the state stake in RBS would have to be excluded. Otherwise, it is simple, easy to understand and cuts the National Debt now, rather than just benefiting the likes of Goldman Sachs, as the CPS nonsense would.

  16. Jonathan
    May 27, 2011

    RBS shares are, at the time of writing this, 41.81p each. The government paid 65.5p for them. So why would I want to pay 65.5p to the government when I can get them on the market for about 2/3 of that price? This incidentally is the reason the original rights issue failed, and the government ended up owning most of the company.

  17. Anoneumouse
    May 27, 2011

    I like the idea of Voter

    You do mean those who are ‘registered’ to vote at a General election.

  18. norman
    May 27, 2011

    Would have to be every voter, no way could you exclude non-taxpayers. In fact, I’d go further and say, in the name of fairness, that the less tax you pay the more shares you receive. This may seem counter-intuitive but that’s how the fairness doctrine works.

    After all, why should millionaires and billionaires, who caused this, benefit when all the pain is felt by ordinary working (or non-working if they have been opressed by aforementioned millionaires and billionaires) people?

    Thinking about it, it would have to be taxpayers and voters, as there are a lot of EU citizens who pay their ‘fair share’ to the economy so they are surely due something back too?

    In all seriousness, this will never happen, for the reasons above (can’t be seen to be unfair to anyone, however tiny a proportion of the population they are) as well as it would remind people of the nasty 80’s and we can’t have that.

  19. forthurst
    May 27, 2011

    Presumably, the government would transfer their shares into a new class of share which was quoted at the ordinary share price less x? Would these shares by held in a nominee account or issued as paper? Would the bank be permitted to pay dividends, because without dividends, bank shares are about as much use as a camel at a race track with a share price to match? If they did, who would receive them? If the government was keen to redeem its investment, why make that contingent on decisions or non-decisions of millions of small shareholders? Would there not have to be a sell by date attached to these shares or the government would never get its money back on some of them and at least have to wait an awfully long time in others? What would be the cost of operating this scheme until all the shares had returned to ordinary share status? Even if the shares traded back to the original rights value paid by the government, might they not be locked into that price as every time the market rose above, selling pressure would cause it to drop?

    Would it not be far better to accept that companies are worth what the market values them at which does not necessarily bear any resemblance to what it used to value it at in bubble conditions? A company like RBS has a lot of subsidiaries and the government is eager to encourage choice: would it not be better to list these companies and at the same time introduce legislation banning takeovers of financial companies until there was far more competition? Would it not be better to stop the foreign ownership of British banks since the parent can get into financial difficulty with British depositors and the government is powerless to take action other than direct bailouts like with Iceland?

  20. Gary
    May 27, 2011

    Those “free shares” cost us £1.3 Trillion.

  21. Gary
    May 27, 2011

    Looks to me like some kind of bookkeeping sleight of hand for the govt to rid some debt from its books. The people already own those shares, since we own the govt. What is the material impact on the govt debt if these shares were to be transferred to the people ? I suspect the govt would also transfer the debt to us as private individuals. Someone needs to get to the bottom of this.

  22. Bernard Otway
    May 27, 2011

    Dear Javelin
    Please can you comment on my piece written [One of 5 that I did]on the topic one before this about the leadership meeting in Paris,it was the one about Vince Cables remarks on Warren Buffet’s comments on asset backed mortgage securities,which are along your lines above.
    For me unfortunately I agree with your pessimism.Although I agree with John wholeheartedly on this suggestion,but shareholder activism must be strengthened

  23. Steve Cox
    May 27, 2011

    You’d be pretty brave to put a lot of money into British banks, other than HSBC (which, like S&C, is really a Far Eastern bank) at present. I don’t know if you caught this brief look at the future WHEN (apparently it’s not if, no matter what Ms. Merkel and the the ECB may think!) Greece defaults. Leaving the Euro is, of course, a “soft” default, so it becomes the same thing. I suspect that all the independent analysts saying that Greece will default sooner or later are correct, but how many people have thought through the ramifications? The last point in the article is (for us), the scariest. Here’s the link:

    1. Stuart Fairney
      May 27, 2011

      I cannot tell you the humber of people, gold bugs and others, who have forwarded me this article. Pretty much everyone I talk to knows the game is up for Greece, and the logic of the article is relentless.

      Anyway since the useless FCO won’t tell you, allow humble SF to advise against travel to Greece, Spain or Portugal this summer due to the risk of sovereign default, and riotous mobs looting tourists for their Euros.

  24. Damien
    May 27, 2011

    JR: Am I correct in thinking that the government owned shares were paid with taxpayers money and the scheme is that we taxpayers buy ‘our’ shares back at the original price we paid? The public might be wary of buying any bank shares until the true cost of capitalization and other regulations are in place to safeguard the public. Cash is tight for many and this might undermine any fully priced share offering (although private companies and investors are awash with QE money).

    There was some earlier mention of selling public assets but then it went quiet. I hope that you might be able to blog on that topic in the future as that along with the sale of the government bank shares would help the budget.

  25. BobE
    May 27, 2011

    When my son finishes university he will owe about £45,000. Thats fees plus accomodation. This will be loaded by inflation rate interest. Thats what Blair, Brown Cameron and Clegg have done.

  26. Denis Cooper
    May 27, 2011

    I’ve read about this proposal before, and I can’t avoid the conclusion that it would be a complex, expensive and inherently unworkable scheme.

    There are about 45 million adult citizens, and as even those who pay no income tas still pay indirect taxes I’m going to take that as the number of shareholders RBS and Lloyds would each have after the shares were distributed.

    Would these be voting shareholders? If not, who would approve or reject the various resolutions proposed by the board at each company AGM?

    As shareholders, what information would they receive each year about the progress of their company?

    If they choose not to be bothered holding a share which has an inital net value of say £10, how much will it cost to relieve them of their unwanted holding?

    And what about the millions of shares which would be forgotten by their owners, because they’d been foisted on people who had no idea what it was all about?

    Here’s a much simpler and more practical scheme:

    In place of some of the gilts the DMO would sell to borrow money for the government, National Savings offers five year tax-exempt Bail-Out Bonds with a fixed minimum return plus a bonus related to the bank share price at the end of the period, with the option of rolling over the bond for another five years rather than cashing it in.

    While UKFI holds on to the shares in the banks for the moment, monitors their progress and casts its votes on behalf of all of us, and sells the shares off gradually as the fortunes of the banks recover.

    Offer the National Savings bonds in units of £50, to make them widely accessible, and set a maximum individual holding of say £20,000, and if there are ever any profits from selling off the bank shares then they will be distributed roughly in line with the ability to buy the bonds, which will be very roughly in line with the losses the saver is likely to have suffered through the financial fiasco.

  27. Acorn
    May 27, 2011

    Please send free shares. As I have already paid for them once via my taxes; or my future taxes, if it was interest bearing borrowed money the government used.

    To avoid having to pay for my shares twice, I will hold onto them for years and collect the dividends. I will not sell when they pass the strike price; I will not pay the compulsory CGT, or the broker fees. I am assuming these shares will pay a dividend? Trouble is we just don’t know how insolvent this bank is. Never mind the shares are free, who cares!!!!!

  28. Brian Tomkinson
    May 27, 2011

    Cameron is more likely to want to give them as overseas aid than to UK taxpayers. What a week – away from the photo opportunities – record borrowing; rising immigration; apache helicopters to Libya; more borrowed money given away; Clegg destroying the NHS reforms; Cable warning of another crash; Huhne interviewed by police…. The sooner you backbenchers get a grip of this incompetence the better or else you will all be out on your necks.

  29. REPay
    May 27, 2011

    I like the idea of our public sector pensions being funded at least in part through the ownership of shares. Too many of the senior ones who make policy are hemetically sealed from the vagaries of the economy they have helped to trash. The FTSE 100 real returns over the last decade have been around 0.2% – Labour looked the other whilst bosses enriched themselves – this was our boom economy yet the shareholders did not do well.

  30. sjb
    May 27, 2011

    JR wrote: “A week ago Monday I was the guest speaker at a Centre for Policy Studies lunch, talking about how to speed growth and create more jobs. ”

    Did you discuss the recently published Hargreaves report?
    The professor estimates that if his recommendations are followed it would add ” between 0.3 per cent and 0.6 per cent to annual GDP growth” (p7). It seems to me creative industries are where we can really compete with the rest of the world. I would be interested in your views on the merits on Hargreaves proposals and whether some or all of them will be implemented in the near future.

  31. David Price
    May 28, 2011

    Why would I want shares in a business that has already been bankrupt once where the culture of reward in the face of abject failure still persists?

    No shares thank you, the number involved would give little dividend, be costly and unweildy for everyone to handle and hold and give no real influence over the execs who will make or re-break the banks. I’d rather take bonds that come higher in the pecking order if the bank gets into trouble again.

    I am more interested in hearing your views on what realistic proposals the CPS have come up with to speed growth and increase employment.

  32. John Moss
    May 28, 2011

    What about those of us who already own Lloyds and RBS shares?

    I have not looked at the policy paper, but it would appear to lock the Government’s shares in to the current depressed valuation, so reducing liquidity and creating two classes of share. Not unusual, but the ex-government shares would have to be traded separately until they reached the hurdle price.

    I will read the paper, but It does not appear to have been thought through.

  33. sm
    May 28, 2011

    Lets have a full public enquiry into the whole banking industry onshore,offshore, fractional reserve banking. Including the Bank of England.

    I prefer private industry but it must be well regulated, allowing for normal profits and it should be regulated to work in the majority of UK citizen interests.

    Ditto parliament.

    RBS report able to be published yet in full? I wonder if i am allowed to speculate if it needs a narrator to read it out in parliament first.

    We could equally send a ‘free book’ to all citizens called.
    I have no interest financial interest here except as a citizen/taxpayer.
    Treasure Islands: Tax Havens and the Men who Stole the World

    I agree with the sentiments and the overall objectives but i would prefer a better system in place which works for the UK citizen not private interests. Public subsidy yes if required for UK public needs, but only after the other creditors have taken a bath.

    The economic adjustment is going to happen anyway via inflation or deflation, it just effects people differently. For example inflation is like a wealth tax in reverse, unless you have power to avoid it. Protecting bondholders has a price.

    A 100% gold backed pound bank-account ran by someone would be useful, with minimal costs. It would prevent the current madness of ZIRP and debt on debt. Ive feel its coming soon.

  34. Bob
    May 28, 2011

    Why do politicians always have to complicate matters?
    It seems like they just refuse to face the fact that they have lost the taxpayers a lot of money so they come up with hare brained schemes to knock their mistakes into the long grass. This is just another “non-job” creation scheme.
    Just sell the shares and take the loss as Waramess suggests, and send the proceeds of the sale to a country that needs it more than we do like Pakistan, Ethiopia or Greece.

  35. Jamess
    May 29, 2011

    Why not simply give the shares to us and let us do what we want with it? After all, we do already own it.

    1. Bob
      June 1, 2011

      It depends on who qualifies as “us”, is it taxpayers only or would you include anyone resident here? Would you exclude those living in prison?

  36. No kitchen
    June 20, 2011

    Not very knowledgeable about how big finance operates. Just a single mother adversely affected by the public sector cuts who can’t understand how we got into this mess in the first place. Humor my ignorance, someone? Tell me what would have happened to the ordinary taxpayers if RBS and other banks had been allowed to collapse… Just so I know that my inability to afford decent living conditions for my sons has some larger purpose.

    Reply: I advocated no equity bail out for RBS. Public spending was too high regardless of the banks, which is why the Coalition has put taxes up to pay for it.

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