Banks and the UK Taxpayer

Author – Hemant Chauhan

News has recently come to light that the £20.3bn spent on the bail out of Lloyds Banking Group has been fully repaid.  The UK taxpayer has earned £20.4bn in full.  In accordance with BBC News, the majority of the funds returned has derived from selling tranches of Lloyds shares.
Under David Cameron’s leadership (2010-2016), Chancellor George Osborne announced in his annual Mansion House speech that the UK taxpayers’ 80% stake in the Royal Bank of Scotland would soon be sold.  Of course, optimistic news shuddered the lights in many UK homes.  In the wake of the 2008 financial crisis, the UK government under the Brown administration provided RBS with a £45.5bn bailout, and paid 502p per share in order to provide the struggling bank with liquidity.  However, the move certainly suggests that the Tories have made somewhat of a blunder, insofar as the UK taxpayer may record a £7bn loss when the government sells its stake in the bank. However, one must contrast that with the taxpayer balance sheet burden.  Alastair Darling, the then UK Labour Chancellor, spent £45bn bailing out RBS and another £63bn on Lloyd’s, Bradford & Bingley, Northern Rock; perhaps it was the right move to privatise the bank and relinquish some funds.

The most remarkable effect of the banking crisis, was that governments nationalised banks, or they recapitalised banks with public money.  Given Labour’s manifesto in 1983 had attempted to do so, described as “the longest suicide note in history” was not welcomed, the notion that a Labour government should required to pursue that policy in 2007 was all the more difficult.  From a legal perspective, crisis management of this sort is not governed by law in the sense that the law does not instruct politicians, economics, bankers what they should do; rather, those address the crisis in whatever way seems appropriate at the time but at various points they will require legal powers to take whatever actions they need so that they can force others to comply with them.

The Office of Budget Responsibility (OBR) cut its valuation to £14.8bn as Philip Hammond stated that the disposal of RBS shares at the current price would not be practical.  Will the OBR reduce the taxpayers’ holding further as the government battles to reduce public debt? How might Brexit affect its ability to do so?

Certainly, the forthcoming general elections will spark such debates with economic trends.  Talks with all political parties are currently being undertaken, and some might form a coalition to make up the majority seats in Parliament required to form Government.  Theresa May has made a bold statement regarding this ‘snap election’, and perhaps has been advised by the Whigs and senior members, to win the public support of the UK in the aftermath of Brexit and foreign policy.

Thank you for reading, please follow LEGAL EAGLE for a view on politics and the law in a plain talking language. Updates on recent news will be covered. 

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