George Osborne ready to sell taxpayers’ stake in Lloyds Banking Group
Chancellor tells bankers in Mansion House speech time is right to sell bailed-out bank back to private sector.
George Osborne has signalled he is ready to start the sell-off of the taxpayer’s stake in Lloyds Banking Group, but said he is to consider whether to break up the Royal Bank of Scotland, in a move that could delay the bailed-out bank’s return to the private sector.
In his annual speech to City grandees at Mansion House on Wednesday night, the chancellor said he was “actively considering options for share sales in Lloyds”, in which the government has a 39% stake. Speculation is mounting that a partial sell-off of the state’s Lloyds stake could take place within months.
But he played down expectations of an immediate “Tell Sid”-style privatisation, as implemented by the Conservatives for British Gas during the 1980s.
Big City institutions are likely to be offered a chunk of shares first as an “institutional placement is likely to be the most effective way of managing risk and getting value”. He added: “And for later share sales, we will consider a retail offering to the general public.”
The chancellor also used his strongest language yet to signal his confidence that the economy is recovering nearly five years after the banking crisis forced taxpayers to pump £65bn into the two banks. He said: “We are moving from rescue to recovery. But while Britain has left intensive care, we still need to secure the recovery – and make sure we continue to treat the ailments that brought us low in the first place.”
Osborne told leading bankers and City figures assembled at Mansion House that the move to a share sell-off was a sign of this recovery, but he refused to set out a timetable. He stressed that bailed-out banks needed to support the economy through more lending to businesses and that a sell-off must generate an acceptable return for the taxpayer.
Shadow chancellor Ed Balls said Osborne had been forced to “back down from the foolhardy idea of a pre-election firesale of RBS”.
“This would have meant a loss of billions of pounds to the taxpayer at the current share price,” he said, urging the government to look at other options for RBS, including splitting its retail and investment banking arms.
Balls said the chancellor’s comments about the economy would make “families and businesses think the chancellor is not living in the real world”.
Osborne was speaking hours after the parliamentary commission on banking standards, chaired by Conservative MP Andrew Tyrie, called on the government to consider an RBS break-up and introduce new rules to jail bankers for “reckless misconduct”.
Both those ideas were embraced by the government on Wednesday. David Cameron told MPs the financial services banking reform bill would be amended to introduce a new criminal offence for reckless misconduct, while Osborne used the cover of the commission’s report to change his view on an RBS break-up. Only four months ago he had appeared to reject a break-up, but he said last night that “with hindsight I think splitting RBS into a good bank and bad bank was probably what should have happened in 2008”.
Osborne added: “That is with hindsight. I wasn’t in office. I didn’t suggest it in opposition. And I’m not criticising my predecessor [Alistair Darling], who had to act quickly in a desperate situation.”
On the 81% stake in RBS, bought for £45bn in 2008 and 2009 to stop the Edinburgh-based bank collapsing, Osborne said the sale was “some way off”, despite the resignation of the bank’s boss Stephen Hester last week in a move intended to speed up a sell-off.
Any privatisation will be delayed by the review to look at whether a “bad bank” should be set up to house the Ulster Bank subsidiary and UK commercial property loans granted by RBS before its bailout.
RBS chairman Sir Philip Hampton said any steps that could speed up privatisation were worth “thorough consideration” but added: “Ultimately any change to our strategy would need to be in the interests of all shareholders.”
Osborne took steps last night that the City regards as essential to kick off an RBS share sale by announcing talks to remove a special share – known as a dividend access share – put into RBS at the time of its bailout that prevents the bank paying dividends. It is estimated that the bank will have to pay the government as much as £2bn to buy the share.
External advisers will be appointed to conduct the three-month review of RBS.
The chancellor stressed that no more taxpayer money would be pumped into the bank. The review might also be seen as a victory for Sir Mervyn King, who has been calling for a break-up of RBS.
In his last speech as governor of the Bank of England, King told the Mansion House audience: “I welcome your announcement that Lloyds Banking Group will be returned to private hands soon. And I very much support your plans for a full review of the structure of RBS.”
Banks, he said, needed to make a real contribution to the economy: “It must be time for decisive action.”
King, who will be replaced by Canadian Mark Carney at the end of the month, said there were “clear signs of recovery in the UK, albeit modest, under way”. But he appeared far less confident about the strength of the economy, saying “the need to support the recovery remains”.
It was also announced on Wednesdaynight that King would receive a life peerage, under rules that allow the prime minister to nominate up to 10 people for life peerages during each parliament. Cameron nominated King for his significant contribution to public service, Downing Street said.
Osborne’s upbeat language on the economy was a careful attempt to avoid the ridicule that one of his predecessors, Lord Lamont, faced in 1991 after claiming “green shoots of economic spring” were appearing in the middle of a recession.
Other aspects of the banking commission report were accepted on Wednesday. A study of competition in the small business sector was launched while Cameron also voiced support for the commission’s recommendation to force bankers to wait up to 10 years for bonuses.
At prime minister’s questions Ed Miliband seized on figures from the Office for National Statistics, which showed a 64% increase in bonuses over the past year, to attack the prime minister for giving bankers a tax cut. The cut in the top rate of income tax from 50p to 45p was introduced in April.
Cameron said bonuses were a fifth of the size they were when under Labour was in power. Miliband retorted: “He cannot deny the figures I read out to him. He doesn’t even know the facts. Bonuses are up so that people can take advantage of his massive tax cut.”