A Fraud Against The Public

Seumas Milne writes:

Any doubt over who calls the shots at Britain's part-nationalised banks has been dispelled by the fate of Stephen Hester. The RBS chief executive has been forced out at the behest of George Osborne. Forget the arms-length paraphernalia of the UKFI holding company. When ministers want the bailed-out banks to do something, they do it.

That's as it should be, since the state (not the "taxpayer" as the media constantly intones) currently owns 81% and 39% of RBS and Lloyds TSB respectively. The problem is what they want to do with them – which is sell them off fast, regardless of the loss to the public purse or the damage to the economy. The chancellor is driven by a mixture of unbending ideology and raw electoral calculation. He and David Cameron are determined to start the largest privatisations in Britain's history by the end of 2014 – just in time for a 2015 election.

The idea is to engineer a "Tell Sid" 1980s-style Thatcherite handout to the right kind of voters, while ensuring that the heresy of publicly owned banks is consigned to the nightmares of the 2008 market meltdown. Hester, who now stands to pocket an extra £5.6m after more than 40,000 RBS workers have lost their jobs, was insufficiently gung-ho for the scale of early sell-off Osborne regards as critical to Tory fortunes. His successor will get the message.

Next week Osborne is expected to set out the kind of discounts he plans to offer for Lloyds shares. He's also toying with the rightwing thinktank Policy Exchange's plan for a wider share giveaway. For the Tory leadership, it's a trade-off between the appearance of a public windfall and the risk of being seen again to stuff the pockets of the better-off as living standards plummet. In reality, it will be a fraud against the public and an attack on genuine economic recovery.

The Brown government paid well over the odds to prevent the collapse of RBS and Lloyds in 2008. Now, Cameron and Osborne show every sign of selling the public stakes well below them, as they did with Northern Rock. No amount of dodgy breakeven accounting will hide the billions that stand to be lost. But even more important, returning the banks to the private sector that brought them to the brink in the first place will throw away a decisive lever to rebuild and restructure the economy for the future.

That's not the way the part-nationalised banks have been run for the past five years, of course. The overriding political concern has been to prepare them for re-privatisation. Even now, RBS and Lloyds lending to businesses is actually falling as a result. But that's a political decision – and, as we've seen this week, it's the politicians who are in charge. RBS and Lloyds could be used now as a motor of growth and investment to reshape the economy, channelling lending to infrastructure, the sectors of the future and public housebuilding.

Private investment has as good as collapsed in Britain. But instead of using the publicly controlled banks to fill that gap, Osborne is in a frenzy to hand them back to the private sector, pumping up mortgage lending instead. There's a wider case for bank breakups, regional banks and mutuals to create a finance sector that supports sustainable growth. But right now, use the tools we've got. Support for turning RBS into a fully fledged public bank stretches from the TUC via Vince Cable to Margaret Thatcher's chancellor Nigel Lawson. The best hope must be that Osborne's pre-election scam fails.