Following the spending spree by the Labour government in October last year, the British taxpayer became the proud owner of a large stake in three of the UK’s largest high street banks. Now its time to sell up.
EU competition legislation, which bans governments from owning banks, will soon force the government to sell off its banking assets. But what effect will this have on the British banking system? And will the taxpayer be getting their money back?
In their current state the banks are undesirable to perspective buyers, so the first move by the government will be to split the banks up into profitable, desirable banks which will be sold, and ‘bad banks’, which the government will retain for the time being. There is speculation that prospective buyers could include Tesco, Virgin and other new entrants into the banking market. The government hope that this will boost “competition and choice”.
The proposed ‘good banks’ for sale include pieces of RBS, of which the government owns 70%, such as its Churchill and Direct Line insurance services, its Natwest branches in Scotland and its RBS-branded branches in England and Wales. Lloyds will suffer a similar fate with its good assets including its Cheltenham & Gloucester branches and its Lloyds branches in Scotland.
The Chancellor has called this move “a better deal for the taxpayer” and has said that the sale will only take place “when the time is right”. At the same time he has admitted that Gordon Brown was wrong by predicting that the UK would lead the world out of recession, though maintaing that we would be out of recession by the end of the year. But as the UK is still in recession (unlike France, Germany and the US), is this really the best time to be breaking apart banking groups?
Banking experts have described the move as a “big distraction”, during a time where banks should be working to support the economy and bring us out of recession. More criticism has been levelled at the foreign investors who look keen to buy up the ‘good banks’; names such as Santander and Zurich have been thrown around. In the high street this would represent another blow to the UK owned banking system as foreign investors continue to buy up UK banks.
In fact a lot of criticism has been aimed at the timing of the sale. Treasury spokesman for the Liberal Democrats, Vince Cable, thinks that there should be no urgency and that time should be taken to ensure that the best parts of the banks do not go to private investors and that taxpayers are stuck with the ‘scraps’. Peter McNamara, Managing Director of Alliance and Leicester, claims that selling off the banks now could be counter-productive:
“Half the banks in the UK are going to be reorganised when you could argue their day job is to support industry and consumers during the recession. Without that support, we are more likely to have a steeper rise in unemployment.”
So in the end it seems that the taxpayer will be left holding the toxic ‘bad banks’ while foreign investors could walk away with the prime cuts of the British banking system during a recession in a government plan that could even increase unemployment. Sounds like another raw deal for the taxpayer to me.