When the then Labour government undertook emergency part-nationalisation of the Royal Bank of Scotland and Halifax Bank of Scotland (HBOS), shortly after taking over 100% of shares in Northern Rock in 2008, observers anticipated that the new shareholdings would be returned to the private sector within three years. Little did they know that in 2012, the banking world would still see the privatisation of 82% of RBS and around 40% of Lloyds Banking Group (the megabank formed by the 2009 merger of HBOS and the financially sound Lloyds TSB) as a distant prospect.
Without state intervention, the entire banking system would certainly have collapsed, with unthinkable consequences for the economy. £1,200,000,000,000 of public money, in various forms, was injected into the financial services sector at the height of the crisis. Today, with over £200 billion of state assistance still used by the banks, the Government claims powerlessness as the public demand that the banks release desperately needed credit to British business. Both the Labour and the Coalition governments appear to view the public shareholdings in RBS and Lloyds as liabilities to be held at arm’s length, and so refuse to use their powers to force in increase in business lending.
Fortunately for the British taxpayer, politicians of both the Coalition parties, despite their small-state instincts, dare not attempt to sell banking shares until the government can break even, and this means that two of the nation’s largest banks are operating in a framework with a curious lack of accountability, and will continue to do so until after the next general election: “we” the British public own them, and will continue to do so, but we cannot act as of that is the case.
Is it not time that, rather than watching the clock until the Treasury can sell-off its holdings in the two banks, the government fulfilled its duties not only to defend its citizens interest, but to act as a responsible, active shareholder? There is a strong case for nationalising the remaining 18% of RBS shares, and converting it into a real “People’s Bank” designed to stimulate competition for individual savers and commercial borrowers? RBS has a large stock of cash deposited with the Bank of England- money which could be used to fuel economic development and innovation. At a time in which unemployment levels remain unsatisfactorily high, it is obscene that our banks are effectively blocking the creation of ten of thousands, if not hundreds of thousands, of new jobs.
When an industry’s activities are damaging the environment, local communities, or the national interest, it is the role of a responsible government to intervene. If this is applied (in theory) to factories and supermarkets, surely there is even more reason to do so with our banks, the primary movers of money around our economy? How can it be that our government refuses to step in when it has the indisputable right to do so?
It will take over a decade to restore a healthy banking system; so it is surely now that we should be asking if we want to return to the privately-owned oligopoly that has and continues to so blatantly hold our government and economy to ransom. There is a case to be made for introducing public and third sector ownership in certain cases, in order to create a genuinely competitive market. Unfortunately, it appears that our political leaders are unwilling to undertake any action that upsets a balance of power tilted against the electorate and towards the murky world of private equity firms, prestigious millionaires, and big business that are allowed control over the engines of finance. Until this changes, we will all lose out.
BY: Jack Darrant