Clegg’s call for a bank shares giveaway has its critics, but there are supporters

By Simon Watkins for The Mail on Sunday

He is an unlikely inheritor of Maggie Thatcher's mantle, but 20 years after her government 'told Sid' about buying British Gas shares, Nick Clegg has proposed a share handout that would put even the biggest privatisations of the Eighties in the shade.

The Deputy Prime Minister wants to give shares in taxpayer-owned Royal Bank of Scotland and Lloyds Banking Group to all 45 million registered electors.

But the proposal was quickly mocked by Shadow Chancellor Ed Balls, and the reception from the Treasury – 'we are happy to listen to ideas' – was hardly a ringing endorsement. George Osborne is thought to be more keen to maximise cash returns to help fill the budget deficit rather than pursue a political principle.

Deputy Prime Minister Nick Clegg addresses the Liberal Democrats Spring Conference in Sheffield City Hall

Backing: Nick Clegg wants taxpayers to be given shares in Lloyds and RBS


But champions of wider share ownership and some City players keen for a boost to share trading have welcomed the idea, none more than Gavin Oldham, chief executive of online retail stockbroker The Share Centre.

He has already been talking with Portman Capital Partners, the consultancy that drew up the details of the plan since adopted by Clegg. 'We've been having some in-depth conversations with them and think it can be delivered,' said Oldham.

And Oldham believes it could prove an unprecedented boost for popular shareholding.

'If you have 40 million owning shares, you can be sure the prices will be prominently reported in every paper and on news broadcasts,' he said.

The privatisations of the Eighties created millions of retail shareholders, as did the demutualisations of the Nineties when the biggest building societies became banks. There are about 4.5 million active private investors in Britain, according to Oldham. Clegg's plan would boost this tenfold.

The most widely held share is already Lloyds Banking Group with 2.7 million shareholders, thanks to its acquisition of the Halifax, which demutualised in the late Nineties.

The most popular shares in Britain

Oldham's one caveat is that the shares could not just be handed out to every voter or taxpayer. 'If you just thrust this sort of thing on people and one day they get something in the post saying they own shares, the chances of things going wrong are much higher,' he said.

But Oldham said requiring people actively to sign up would not significantly decrease the number who received shares. 'If you look at child trust funds, you have an example of something that was given away but which people had to step forward to take – so it gives us an inkling of how many people step forward in these situations,' he said.

'The evidence from child trust funds is that the vast majority do. And I think it would be spread across society and not just taken up by the affluent.'

Oldham also said the process could be managed by retail brokers without the need for a huge government infrastructure and would cut out investment banks that would normally be needed – at high fees – to manage a more traditional share sale on this scale.

'I am sure retail stockbrokers will step forward and I have no doubt the retail brokers are capable of handling volumes like this,' he said.

'The shares would be held in nominee accounts and retail brokers would be responsible for all the administration and they could be responsible for channelling the money back to the Treasury.'

Oldham also argued that the mass handout could be used to encourage retail investors to make their voices heard and to make brokers provide the services necessary to collate the votes of shareholders for the banks annual meetings where issues such as pay and bonuses are voted on.

'You could make it a condition of retail brokers taking part that they provide a system for registering shareholders votes,' he said. Charlotte Black, director of corporate affairs at broker Brewin Dolphin, is as keen as Oldham in principle, but she lacks his optimism about the feasibility.

'I love the idea of everyone in the country holding shares and thinking like a shareholder. But I just do not think it's feasible. The costs would be mindblowing and I can't see what's in it for the Treasury. I think the more important thing is to get the banks on a sounder footing and to get the money back to the taxpayer.'

The concerns over practicality are shared by Angela Knight, chief executive of the British Bankers' Association and a Treasury Minister under John Major.

Again Knight said the idea was appealing in principle, but would need a lot of work. 'It needs a real practicality check to see what people actually want and to see what is do-able. We should look back at the many examples of successful privatisations like BT, British Gas, BP and lots more. In there we might find a way of managing this process.'

Chine Investment Corporation, the £187 billion sovereign wealth fund, is interested in acquiring a stake in Royal Bank of Scotland.

A CIC insider said talks had been held with representatives at the bank and with UKFI, the company set up to manage the Government's shareholdings in the State-backed banks.

How it could work

The detailed plan by Portman Capital Partners would combine a sale of some shares to institutions with a giveaway of shares to the public, with the Treasury guaranteed to get back the £66 billion invested in bailing out the banks.

Voters would each get 1,450 shares in Royal Bank of Scotland and 440 in Lloyds Banking Group. They would be able to sell the shares if they reached a set price, which would what the Treasury paid for the shares – 51p in the case of RBS and 74p for Lloyds Banking Group.

Shareholders would receive all cash raised above this sum, with the rest going to the Treasury. For example, if RBS shares rose to £1, a voter who sold shares in the market would get 49p a share with 51p going to the Treasury. Shares in RBS currently stand at 36p and Lloyds shares are worth 43.5p. The whole scheme could be adjusted to change the proportion of profit kept by shareholders.

The Treasury could offer shareholders the right to buy out its proportion of the value. Some shareholders might choose to pay the set price upfront, particularly if this meant they paid the Treasury less. The Treasury would receive some of the value of the shares immediately without having to wait for voters to sell the stock.