Shares in the banks? Thanks but no thanks

A group of Lib Dem backbench MPs is supporting a plan by a group called CentreForum, whereby the Government would give the shares it currently holds in Royal Bank of Scotland and Lloyds TSB to all registered voters in the UK. The lucky recipients would then have the option of selling them, or holding on in the hope of capital gains. However, the first part of the proceeds of any sale by a taxpayer would have to be remitted to the Treasury, which would thereby recoup over time the money it spent rescuing the banks at the height of the financial crisis. You can read a summary of the scheme here.

This is an overtly populist move. Its proponents have chosen to portray it as an example of the "big society" that David Cameron is always banging on about. I'm as keen on a freebie as the next man (well, unless the next man happens to be Tony Blair or Prince Andrew), but I don't think this is a good idea.

It's true that "the taxpayers rescued the banks" back in 2008, but it didn't actually cost them any money at the time. The Treasury did it on taxpayers' behalf, with the cost borrowed and added to the national debt. The time for the "taxpayers'" stakes in RBS and Lloyds to be sold is still a long way off: first the Government has to decide whether to break up the larger banks to ensure they are never again too big to fail. When the right time comes, the first priority should surely be to ensure that the Treasury gets to repay the debt incurred as part of the rescue plan as promptly as possible. A second priority is to ensure that as much of the proceeds as possible can be used for that repayment. This implies that setting up a costly one-off scheme to distribute shares to 40 million voters, protecting existing shareholders from a stampede of people looking to cash out as soon as possible, and providing long-term enforcement to chase down those who "forget" to send money to the Treasury when they do sell their shares, are all things that would be better avoided.

It's more than likely that the Government will give taxpayers a right of first refusal to purchase bank shares when the big day arrives, though even that will be an expensive proposition. Simply giving them away might be good politics -- though woe betide the government of the day if the shares crater as everyone rushes to sell -- but it's not good policy.