In 2008, during a financial crisis, NatWest Bank was nationalised. As if by accident, the state became the majority shareholder with 58%, and then-Chancellor Alistair Darling stressed this was a ‘temporary measure.’
We have heard that one before, haven’t we? William Pitt the Younger in 1798 reassured the nation that income tax would be introduced as a ‘temporary measure’ to raise funds to boost our military capacity for the Napoleonic wars. It would only be 2.5% and we would soon be rid of it altogether. Yeah, right.
Licensing laws were introduced to boost productivity during the First World War. Come the glorious day of victory and freedom, the state would stop telling us at what hours it was legal to buy a drink. Still waiting for that too.
Don’t get me started on Schaumweinsteuer – Otto von Bismarck’s tax on sparkling wine. Only to boost the navy for a few years. It’s still there.
As Milton Friedman once said: ‘Nothing is so permanent as a temporary government programme.’
Now, 16 years later, the state still owns 38.6% of NatWest Bank. This is pretty extraordinary especially given the long period of Conservative government in the interim.
The dead hand of state ownership has also dragged the bank towards complacent corporatist group think, rather than being focused on rigorous competition and innovation.
Sir Howard Davies is the bank’s Chairman. He has an annual salary of £763,000 and his credentials as a quangocrat and an academic are impeccable. He is a former Director of the London School of Economics (he quit after taking donations from Gaddafi’s son) and was chairman of the Financial Services Authority. But is his business acumen really that sharp? Earlier this month he said, when asked about getting on the property ladder, ‘I don’t think it is that difficult at the moment.’ He added, ‘You have to save, and that is the way it always used to be.’ Average house prices are £310,000. So I suppose if you are on £763,000 he would have a point. But one might hope he would be capable of a leap of the imagination to realise that more generally it would be challenging.
Then we had Dame Alison Rose, who resigned as chief executive of NatWest last year after admitting to breaking confidentiality by chatting about Nigel Farage’s financial arrangements with the bank.
A flaw in maintaining state ownership during this time was in delaying a sale until the right time to recoup the state’s losses. Perhaps it was an attempt to justify the panicky response in 2008 which bailed out the bankers, who had taken such irresponsible risks, at the expense of those of us on ordinary incomes, the taxpayers. It was corporate welfare that cost not merely billions but hundreds of billions. Rather than being ‘too big to fail’ the fatcat shareholders of the banks were protected.
In a properly competitive market, we would see new entrants emerge to do a better job. But the fault was not a lack of regulation, but a groaning weight of compliance that made it prohibitively expensive for new entrants. With NatWest, we saw Sir Howard and Dame Alison experiencing a rendezvous with destiny.
The point that is missed is that with the privatisations of the Thatcher era, there were two sources of revenue the government was able to extract. First of all from the sale. But secondly from the business thus having greater opportunity to succeed than under nationalisation. There was no longer the political and bureaucratic distortion to decision making. It was able to raise capital in the market place on the basis of merit rather than lobbying for subsidies. There were opportunities to become global competitive enterprises. All that meant more profits, which meant more revenue from corporation tax.
So the mistake of bailing out NatWest has been compounded by hanging on to the shares for all this time.
But in November, Jeremy Hunt announced: ‘As part of the plan to return NatWest to the private sector, the government will explore options to launch a share sale to retail investors in the next 12 months.’
This is very welcome. NatWest has 57,900 employees. It has 19 million customers. The shares are worth £2.24p – so less than half the £5 the Government paid for them back in 2008. The firm is worth around £20bn, and the government’s stake is now below 40%. Of course, one option would be to sell them on the open market. But the opportunity to revive popular capitalism should not be missed. In 2023, Centre for Policy Studies Research Fellow Nick King argued that selling off of the national stake in NatWest could create a whole new generation of UK shareholders.
But we can go further – and some free shares should be involved. Say £1,000 for each NatWest employee who registers and £100 to each NatWest customer. They would have to register – but they would be quite mad not to do so. That knocks out a couple of billion but would transform us into a shareholding democracy. They could also be offered the chance to buy more shares at a discount. So could the rest of us. There could be a big advertising campaign to encourage participation. Readers of a certain age will remember the ‘Tell Sid’ one when British Gas was being sold off.
It would be welcome for the state to exit the commercial banking business. Not least as it would end the vested interest in thwarting competition to the sector. It should have happened more than a decade ago. But at least Hunt’s proposal for an offer to ‘retail investors’ means something can be salvaged from this misguided episode. A bold and generous offer could help to change perceptions about capitalism. Even if a discount might mean lower immediate proceeds, it would be in the longer term interests of NatWest, the taxpayer and the British economy.
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