It is a chancellor of the exchequer’s inescapable job to balance the political and the economic. Throughout his career at the Treasury, George Osborne has often prioritised the former over the latter. Now he has done so again – starting the sell-off of the taxpayers’ stake in the Royal Bank of Scotland earlier, and at a lower price, than market conditions would suggest is wise.
It is seven years since Labour bailed out RBS with a £45bn injection of cash, paying 502p for every share and taking a 79% holding in a bank that ministers rightly accepted was too big to fail. Without that, the financial collapse would have extended far beyond RBS and its ailing competitor Lloyds, in which the Treasury took a 43% share. Ever since, a period during which the banks have been substantially restructured, the Treasury has been eyeing the moment at which the state could begin to recoup its investment by selling off its shares. So far, so uncontroversial.
Two years ago, the sell-off at Lloyds began promisingly; the government has since made a profit on its shares. Not so with RBS. But, less than two months ago, a report by investment banking advisers Rothschild gave an upbeat prospectus for a share sale. “Taxpayers can comfortably expect to secure proceeds from their interventions in the banks that exceed the money put in,” Rothschild told the chancellor. “The UK will be one of the first countries to demonstrate that it can comfortably expect to record a gain on its bank interventions.”
This week, however, Mr Osborne sold 5.2% of the RBS shares at around 330p, raising £2.1bn rather than the £3.2bn Labour paid for them. Labour and the SNP have been quick to condemn Mr Osborne for doing a poor piece of business. On the face of it, they are right. Although the state paid a high price in 2008, which is unlikely to be reached again soon, the Treasury has sold at a bad time too. In February, for instance, RBS shares were above 400p. Some analysts think that price level could be reached again in a year’s time, after RBS has absorbed the expected fine from US regulators for its subprime mortgage policies. Mr Osborne, in other words, could have waited and got us a better price.
Against this, Rothschild was clear that the judgment on the Treasury sell-off should follow the whole programme, not just the first few disposals. In this view of things, for which Mr Osborne argued on Tuesday, the first sell-off this week should be viewed more dynamically. It will kindle expectations of more sales soon, send a strong signal that RBS is on the way back, and push prices up. This week’s sale would be a loss leader.
That’s the benign view. But it is just as plausible, particularly with this chancellor, that Mr Osborne has lost patience for his own reasons. To return the banks to the private sector makes little financial sense at this week’s price. But it sends a clear ideological signal to Thatcherite Tories that Mr Osborne is an ideological privatiser who should lead their party when Mr Cameron steps down. It also allows the chancellor to claim to have mended the banks after Labour’s crisis.
If the RBS share price climbs healthily over the coming months, Mr Osborne will have got the economics right. At the moment, though, the politics seem to be coming first once again. It looks as if the chancellor is selling off our bank shares, not for economic reasons, but to boost his own political share price.
