“Two plus two equals five”, argue Tories. “Two plus two equals three”, respond Lib Dems
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Further worrying evidence of the decline in adult and further education was revealed in the debate about selling off the banks yesterday. The Conservatives have proposed selling bank shares cheaply to people on low incomes to reward taxpayers for putting their money at risk by buying bank shares in the first place. The political aspects of this are arguable (see below) – but this particular argument is a failure of elementary logic. The taxpayer will reap any of the revenue from the sale of bank shares. Selling them cheaply to one set of taxpayers will merely benefit that group of taxpayers and cost taxpayers in general. The Conservative Party might as well say that they will reward taxpayers for the money they have lost in the banks by cutting income tax financed by a rise in National Insurance.
The responses were just as incoherent. Vince Cable said that the Conservative proposals would cost taxpayers a lot of money because, if banks were sold quickly, they would be sold cheaply at a heavy discount. At the same time, he argued, the plan was flawed because it would encourage people to invest in highly risky shares – shares that he believes, according to his previous sentence, could only go up in price. He went on to say that young couples on low incomes are more concerned with putting food on the table than on speculating in the stock market. This patronising remark seems to suggest that Vince Cable does not believe that people on low incomes should have private pensions and should only save (if at all) through bank deposit accounts.
The Conservatives did give some better arguments for their proposals – wanting to widen share ownership and so on. This is certainly a reasonable debate to have. Arguably the more successful privatisations were those that focused on political as well as purely economic objectives. However, the Tories’ proposal undoubtedly represents yet further transfers from taxpayers in general – and particularly middle-income taxpayers – to people on low incomes. It does not bode well for a future Conservative government if it simply regards the interests of middle-income taxpayers (who have suffered greatly in the last 12 years) as expendable.
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I should have also said that artificially widened ownership of bank shares is likely to weaken corporate governance – not necessarily a good idea.
I hope those responsible for disposing of the government’s shareholdings in Lloyds Banking Group and in RBS will bear in mind the other shareholders (of whom I am one) to whom they have a duty.
Shareholders have already been very badly treated: in the autumn of 2008, the governmment elbowed its way into both banks with billions of pounds of Preference share capital with a high 12% coupon and the condition that no ordinary dividends could be paid until the preference shares had been repaid.
The result was to cause the ordinary shares to fall sharply, so that the government eventually got far more ordinary shares for their money. At the expense of the existing shareholders.