George Osborne unveils a quack cure for RBS

11th November 2015

osborneIt was midway between the canon of lamb and the passing of the port that George Osborne rose to his feet.

Addressing a room of 350 white-tie wearing bankers, the 44-year-old Chancellor of the Exchequer seemed to have a spring in his step.

Just a few weeks earlier, the Tories had won a surprise election victory, gaining 330 of the UK’s 650 parliamentary seats. This gave them a majority of 12, meaning they would no longer have to share power with the Liberal Democrats. Osborne seemed to be relishing their new found autonomy.

As Business Secretary, Vince Cable had been a thorn in Osborne’s side. He had given a platform to the Yorkshire businessman Lawrence Tomlinson, who used it to expose shocking abuse of small firms by RBS, NatWest and Ulster Bank. Given their burning desire to sell off RBS for as much money as they could, it was an intervention that the Prime Minister David Cameron and Osborne had seen as most unhelpful.

Soon after the election Cameron and Osborne had installed Sajid Javid — a man much more sympathetic to the banking status quo than Cable, given his years as a  managing director at Deutsche Bank — as business secretary. At Deutsche Bank, Javid had been responsible for structuring a $1 billion synthetic CDO which had blown up in investors’ faces and which became the subject of an American court case in which the German bank was accused of fraud.

Whereas Cable had wanted to rein in banking — prioritising stability and consumer protection over individual greed — Javid is determined to set it free. Since the May election other politicians of a Javid-ian (pro-City) bent had been installed in key Treasury posts, including Harriett Baldwin as economic secretary to the Treasury and David Gauke as financial secretary to the Treasury.

Addressing the bankers and financiers at the Lord Mayor’s banquet in the Mansion House at 8.45pm on Wednesday, 10th June, Osborne felt the government was finally going to be able to get rid of RBS. In his speech, he said that the government could no longer afford to continue hoping against hope that “that something will turn up”. It was time to bite the bullet, cut its losses, and sell off its 79 per cent stake in the bank.

Standing beneath the Lord Mayor’s ceremonial sword and mace in the colonnaded Egyptian Hall, Osborne said: “I’m not interested in what’s easy – I’m interested in what’s right. I was not responsible for the bailout of RBS or the price paid then for shares bought by the taxpayer: but I am responsible for getting the best deal now …. There is no doubt that starting to sell the government’s stake in RBS is the right thing to do.”[i]

Why the fire sale?
Bizarrely, given Osborne’s focus on balancing the UK’s books through welfare cuts, tax credit cuts, and other austerity policies, he didn’t seem to care whether the government sold its stake in RBS at a loss.

Citing advice from the government’s financial advisers Rothschilds, Osborne claimed that, if the proceeds of the RBS sale were to be pooled with those from the sale of the government’s stakes in other banks, such as its 43 per cent stake in Lloyds, taxpayers would make an overall £14 billion gain from their investment in the 2008 bank rescues. The claims later led to accusations of “smoke and mirrors”. Osborne also warned the City diners that, since the reprivatisation of RBS was so huge, and indeed bigger than all the privatisations of the 1980s put together, it would take time to carry out.

Osborne also said the both the Bank of England and Rothschild’s had endorsed his plan for an RBS fire sale. Rothschild’s argued that boosting the size of RBS’s “free float” (the amount of shares that are publicly tradable) would make the taxpayer’s remaining stake more marketable, enabling the shares to gain in value. Rothschild’s also claimed to have detected a window of opportunity since, after £375 billion of quantitative easing from the Bank of England, the “market conditions for financial assets and bank shares are currently good”.

Osborne’s critics were outraged. They couldn’t believe the chancellor seriously intended to sell the government’s 79 per cent stake in RBS — at a loss — back to the very same institutional investors who had sat idly by while Fred Goodwin destroyed it.

Their disenchantment was given piquancy by the assumption that Osborne was “doing  his ‘mates’ in the City a favour” – essentially handing them cheap shares on which to make another killing – much as he had done with the Royal Mail float the previous year. It didn’t help that Tories are essentially “in hock” to the City, reportedly receiving 50.79 per cent of their annual £23 million in funding from City donors.[ii]

The New Economics Foundation, a London-based thinktank promoting sustainable finance and social justice, was particularly incensed by Osborne’s move. “Returning RBS to the same structure that caused the crisis makes no sense,” said Tony Greenham, NEF’s head of finance.

He said the UK had an unprecedented opportunity to increase the diversity of ownership in banking, and risked flunking it if Osborne went ahead. In an earlier report, NEF argued that RBS should be broken up into 130 local banks modelled on Germany’s Sparkassen.

Greenham added: “A network of local banks would boost the diversity and resilience of the UK banking system, spur investment in regions outside London, increase lending to small businesses, and protect jobs and customer service by reversing the damaging trend of branch closures.” [iii] Alongside the campaigners Move Your Money UK, NEF also organised a petition seeking to block the Osborne’s proposed “firesale” of RBS. At the time of writing this had attracted nearly 120,000 signatures.[iv]

With Labour leaderless and on its knees, the political response to Osborne’s plan was muted. ‘City minister’ Baldwin, standing in for Osborne in a dedicated debate on 11 June, had little truck with anyone who advocated a different path. The Green Party MP Caroline Lucas asked whether Osborne had “even considered the alternatives, such as turning RBS into a network of local stakeholder banks, like they have in so many other countries?”

But Baldwin, schooled in the ways of the City after years at JP Morgan, said: “The question the Honourable Lady [Lucas] asks about locally-owned banks indicates she favours a system of public ownership of our banking sector which, overall, the government disagrees with.’[v]

In a subsequent blog post, another Labour MP, the late former environment minister Michael Meacher, accused Osborne of dodgy arithmetic, of a “resolute refusal” to conduct a proper inquiry into the banking sector in the previous parliament, and of “throwing away” an opportunity for reform.[vi]

Note: This previously unpublished extract did not make it into the fully revised and updated paperback edition of Shredded: Inside RBS, The Bank That Broke Britain, published on 7 October 2015. I intend to publish a few similar extracts in coming days.

[i] Speech by Chancellor of the Exchequer, Rt Hon George Osborne MP, Mansion House 2015’, 10 June 2015,


[ii] Nick Mathiason and Yuba Bessaoud, ‘Tory party funding from the City doubles under Cameron’, 8 Feb 2011,TBIJ https://www.thebureauinvestigates.com/2011/02/08/city-financing-of-the-conservative-party-doubles-under-cameron/

[iii] New Economics Foundation, Reforming RBS: Local Banking for the Public Good, 25 February 2015 http://www.neweconomics.org/publications/entry/reforming-rbs

[iv] Somofus petition: ‘George Osborne: don’t sell RBS at a massive loss to taxpayers’ May 2015 http://action.sumofus.org/a/rbs-sell-off/

[v] They Work For You, RBS debate in the House of Commons, 11 June 2015 http://www.theyworkforyou.com/debates/?id=2015-06-11c.1369.0#g1381.4

[vi] Michael Meacher, ‘Osborne’s obsession to privatise RBS is a triple whammy against taxpayers, economy and reform’, 20 June 2015 http://www.michaelmeacher.info/weblog/2015/06/osbornes-obsession-to-privatise-rbs-is-triple-whammy-against-taxpayers-economy-reform/

[vii] Douglas Fraser, ‘Gogarburned: little guys put the heat under RBS bosses,’  BBC News, 23 June 2015 http://bbc.in/1frp8Ms

Short URL: https://www.ianfraser.org/?p=11521

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