Mechanisms to ensure the political acceptability of privatisations should not be rejected automatically, simply because they are inefficient and raise less money for the taxpayer.
Political “buy-in” is important – however the particular mechanism suggested by Nick Clegg, which involves giving 45 million British residents shares in RBS and Lloyds, is flawed.
There would be a tremendous administrative cost – £250m has been suggested – at a time when the Government needs to reduce spending.
Legal records of 45 million shareholders would need to be kept and all those people would be entitled to the information that any company has to send its shareholders.
Many of those people will be suffering from recent tax rises and would prefer the increase in disposable income that would arise from the Government selling the RBS and Lloyds stakes and reducing the pain of recent tax increases.
Perhaps the main flaw in the Clegg approach – which has previously been suggested by the Centre for Policy Studies – is that is could wreak havoc with corporate governance.
Many politicians have been very critical of the way in which banks’ managers and directors were not held sufficiently accountable by their shareholders.
Indeed, Vince Cable suggested a review of issues relating to corporate governance only on Wednesday.
Funnily enough, one of the terms of reference of that review was the problems caused by increasingly fragmented share ownership!
The Clegg plan will make shareholders so dispersed that effective control of the company by shareholders will be impossible.
At best, this could lead the bank to be run very inefficiently; at worst, it could lead managers to run the bank recklessly.
We have one Liberal Democrat Cabinet minister arguing in favour of one policy (increasing shareholder accountability) and another arguing in favour of the precise opposite!
Apparently Vince Cable supports the Clegg plan. The mind boggles.
Read the rest of the article on the Sky News website.