Don’t tell George

Chancellor George Osborne spoke today (October 5) at the Tory Party Conference, just hours after it was announced that the government will continue with its sell-off of its remaining 12 per cent stake in Lloyds Bank, offering discounted shares to the public next spring.

 
Proudly hailing it the “biggest privatisation in 20 years”, Osborne said that all money earned from the shares will be used to pay off the national debt.

 
However, despite the government having sold off most of its stake gradually since December of last year, it still remains more than ÂŁ5bn short in recouping the ÂŁ20.5bn taxpayer-funded bailout the bank received during the financial crisis in 2008.

 
In the latest sell-off Osborne has proposed, ordinary investors who buy less than £1,000 in shares – as opposed to large institutional investors – will be given priority. These investors will receive a 5 per cent discount on shares, as well as a loyalty bonus if they hold onto their shares for longer than a year.

 
It’s a crowd-pleasing, populist idea – reminiscent of the Thatcher-era ‘Tell Sid’ ad campaign – and drew cheers from the delegates at the Tory conference today. But the BBC’s policy editor Chris Cook highlighted the dangers of such a scheme earlier this year.

 
“Bank equity is a super-complex financial product,” he noted. “Modern banks trade in things that are impossibly difficult to follow from the outside.

 
“Lloyds Banking Group is not British Telecom,” he added. “That all makes scrutiny by shareholders both harder and more important. Retail investors, with only small stakes in the company, may not be able to put the time into it. It might not pay for them to bother.”

 
Ultimately, Cook argued, being owned by many small shareholders essentially incentivises the bank to serve management – at the expense of customers and staff – and encourages the same recklessness that sparked the financial crisis seven years ago.

 
“That might not just mean mega-bonuses, which are easy to spot, nor simply unjustifiably high pay,” he said. “The bank could be very badly run. And the shareholders might only find out when it all gets too late.”

 
It’s a point that Unite has long made in its support of the government retaining a controlling share in the banks it bailed out – it provides the opportunity to reform an industry that caused the financial collapse in the first place.

 
Back to the 80s

 
“Osborne is dusting off another plan straight out of the 80s,” said Unite national officer for finance Rob MacGregor in response to today’s news. “But this fire sale is driven by Tory ideology, not what is best for the bank, its staff or the public who rely on it.

 
“With both Lloyds and RBS, rather than rushing to sell the taxpayer’s stake in the banking sector at a loss, the government should use these shares to bring scrutiny and transparency to boardrooms across the industry,” he added. “Osborne should focus on the long-term health of Britain’s banks to ensure the industry works for the good of the public who bailed it out.”

 
Just days before Osborne announcing its sale of the latest tranche of Lloyds shares, the Financial Conduct Authority (FCA) announced that those who were mis-sold payment protection insurance policies (PPI) now face a deadline for making claims.

 
Lloyds was by far the worst offender in the PPI scandal – it has half of the entire industry’s £26bn PPI bill.

 
This, MacGregor noted, shows just why it is so important that banks are under continued scrutiny.
“Without proper scrutiny, how can we be sure it won’t happen again?”

 
Unite, too, has supported the so-called Robin Hood Tax as another means of encouraging banking reform. As a tax on those trading in financial products such as stocks, bonds and commodities, it has the potential to raise more than ÂŁ20bn each year and it discourages the risk-taking behaviour that precipitated the financial collapse.

 
It’s a tax policy that shadow chancellor John McDonnell came out in favour of at a Unite-sponsored fringe meeting at the Labour Party Conference last week.

 
The panel was chaired by Unite assistant general secretary Gail Cartmail, who argued that making the 1 per cent of the financial sector pay their way must not threaten jobs.

 
And it’s yet another reason that the government retaining a controlling share in the banks is so crucial – it would stop the industry from handing down the taxes imposed on them to their workforce, who’ve faced massive job losses and cuts to pay and conditions as a result of the bank levy.

 
“Across the banking sector Unite members are organising and articulating a powerful collective voice to demand change,” Cartmail noted in a recent editorial in support of the Robin Hood Tax. “It is a voice that demands an end to the assault on pay, terms, conditions and pensions. It is a voice that holds senior figures accountable for their actions and brings transparency to the boardrooms.

 
“Most importantly, it is a voice which recognises that being a good employer goes hand in hand with social responsibility,” she said. “This collective voice demands that bank executives pay what they owe, both to the workforce and to the public.”