Balls: Government must explain impact of Clegg’s bank share proposals

Shadow chancellor Ed Balls today called on the government to “urgently explain” the impact on public finances of Nick Clegg’s proposals to give every adult in Britain hundreds of pounds worth of shares in the bailed-out RBS and Lloyds. Clegg’s plan could result in everyone on the electoral roll or National insurance register – estimated at more than 45 million – receiving around £771 of shares, based on last night’s prices.

Reacting to the news, Balls said:

“The test for what happens to the nationalised banks must be the long-term best interests of the taxpayer not the short-term need to get headlines for Nick Clegg’s overseas trip.

“The government needs to urgently explain what impact this proposal will have on the public finances, what the administration costs are estimated to be, how the scheme would work and what effect it would have on the balance sheets of the banks.

“The government also needs to explain why, when families and pensioners are being hit hard by deep cuts and the mistaken VAT rise, they are giving the banks a tax cut this year. They should listen to Labour’s call for a tax on bank bonuses this year to create 100,000 jobs for young people and build 25,000 affordable homes.

“That would help get this stalled economy moving again, get people off the dole and into work and so help get the deficit down.”

Reaction to Clegg’s plan in the Treasury, however, may be even harsher than Balls’s response. Speaking to Sky News this lunchtime, City commentator and former Telegraph Economics Editor Ed Conway said George Osborne’s mood this morning upon hearing the news would be “peeved” and “irritated”.

He added:

“I think that if you talk to anyone at the Treasury, they need to make as much back as possible. Should they follow with a scheme like that their chances of making back as much as they lost are not high – it could be a serious disaster for them.”

Even if the plans fail to come to fruition, the biggest winner will probably be Clegg – at the expense of Mr Osborne.

As David Wighton wrote in this morning’s Times (not available online):

“If George Osborne agrees to the plan, Mr Clegg will get a big chunk of the credit. If the Chancellor resists, Mr Clegg can paint himself as the people’s champion against the forces of the financial establishment. The mere fact that it would deprive City investment banks and lawyers of perhaps £2 billion in fees from traditional sales of shares in Royal Bank of Scotland and Lloyds would make Mr Clegg a hero in many eyes.”

Concluding:

“The hope of the promoters of the idea would be that by aligning people’s financial interests with those of the banks they own it might detoxify the relationship… Past experience is not encouraging, unfortunately. The “popular capitalism” promised by the privatisation programme in the Thatcher years proved a disappointment in anything but purely financial terms. But it just might work this time.

“And even if it doesn’t, the plan could still pay off handsomely for Mr Clegg.”