Free Shares – No Thanks !

This morning a Senior Liberal Democrat has indicated that the government should give away billions of pounds of its shares in Royal Bank of Scotland and Lloyds Banking Group to the general public. I am all for increased public ownership of nationalised companies (Increased public ownership through this privatisation would create a new generation of ‘would be’ investors creating a more business savvy electorate) but in this climate is this the right way in which to undertake such a scheme.

Such a scheme overlooks the fiscal difficulties that the country faces, and more worrying that such a scheme overlooks the crowding out of public investors who would invest regardless of the conditions imposed by the government. If everyone is given an equal share regardless of whether they want or will use the shares then some of the capital will be wasted – stakeholders will not use the capital they are given, they will forget they neither have the shares nor reap the rewards that the share of the company offers. People would rather receive a real monetary gain rather than abstract shares.

What I suggest is similar to the approach that the Conservative Government used in the 1980’s with the approach used to privatise British industries such as British Telecom. People would be invited to buy shares at discounted rates, in order to encourage the public to take up ownership whilst creating billions for the public purse. People who decide to invest in the scheme could buy as many, up to ceiling, or as few shares as they wish knowing that the value of the shares would increase – due to being offered at a discounted rate to the public. These people would be investing in the public owned banks because they desired and chose to do so.

The money generated from the sale could then be used to generate a one off fiscal stimulus or paying off a fraction of our debt burden thus reducing our interest payments. The second approach would help in paying off our structural debt, but also the deficit as interest payments are reduced. We should not return to the mantra of spending money we simply cannot afford to, and any policy decisions made should reflect the long term stability and health of our fiscal policy.

Matt Harley, Conservative Staff


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