Today marks the beginning of the end of an eight year saga, in which the Government has propped up one of the country’s major financial institutions. Few can forget the days of the credit crunch, which impacted the population in countless ways from redundancy to reduced access to borrowing, from sluggish economic and business growth to rising living costs. And little symbolised those dark times more than the decision of the then-government to pump some £45 billion into the Royal Bank of Scotland (RBS).
The rationale was simple. While it cost the taxpayer to keep RBS open, the alternative was far worse. But yesterday the Chancellor of the Exchequer decided the time had come to begin shedding that weight. And so the Government began selling its 80 percent stake in the bank.
Commentators such as the Telegraph’s Alistair Heath have hailed the announcement as a sign of progress and a movement away from one of the darker periods in British economic history. But the announcement hasn’t been exactly greeted with the popping of champagne corks, and this is symptomatic of the unsteady ground the Government finds itself on.
While the divestment of shares in other financial institutions (such as Lloyds) have largely been greeted with a positive response, critics have been swift to point out that RBS is continuing to report heavy losses and is only one year into a five year restructuring plan. The Government has also faced questions as to why it’s selling off part of its stake now, at a far lower share price than was the case a matter of months ago.
The result is that taxpayers might take a hit of up to £15 billion on the bailout. Any this makes the announcement a communications problem for the Government.
Ministers are perfectly within their rights to explain that this is a problem dumped on their doorstep by their predecessors, and that RBS has now reached the point where it will prosper more under private rather than public ownership. Equally, the Government isn’t selling all its shares in one go. The process will take until 2020 and beyond.
The problem for George Osborne and his fellow Treasury ministers is they’re saddled with the ghosts of the past. The Coalition attracted enormous criticism for its sell-off of Royal Mail, the value of which rose sharply after the sale, meaning the public had lost out on the potential of billions going back into the public purse. While RBS’s share price may well rise over the course of the sale, the Government will have difficult questions to answer if it quickly rebounds in value, highlighting the loss to the public.
But the real communications threat to ministers is more visual. Even if RBS does restore some of its former lustre and benefits the economy, the public will likely have little interest of sympathy if the bank – and indeed the wider financial sector – begin to show signs of the largesse that typified the pre-credit crunch period. If that happens, George Osborne will face rather more difficult questions that why he’s selling up now rather than earlier in the year.