‘Fire sale’ of RBS shares to pay for Brexit deal and economic recovery plan
● Two-thirds of RBS shares owned by government to be sold ● Disposal is labelled ‘rather desperate’ by SNP’S Blackford
Philip Hammond has been accused of mounting a “fire sale” of Royal Bank of Scotland shares to pay for Brexit preparations and investment aimed at shoring up the UK’S flagging economic growth.
The Treasury revealed plans to raise £15 billion by selling off two-thirds of its stake in the bailed-out bank despite RBS’ share price sitting at half the value of what the government paid.
Revenue from the sell-off represents almost two-thirds of a £25bn stimulus package announced by the Chancellor as he loosened the purse strings to combat gloomy economic data showing Brexit will wipe a quarter off growth rates over the next five years.
SNP Westminster leader Ian Blackford said it was the wrong time for a “fire sale” of the public’s share in RBS. Former business secretary Sir Vince Cable called the move “rather desperate”.
Mr Blackford said: “This is the wrong time to be selling RBS shares. We’ve got to look forward to a time when the public that invested in RBS through the government can get a return on that investment.”
Criticising the Budget, he added: “If you put this in the context of preparedness for Brexit, particularly preparedness for a hard Brexit, it’s not good. When you take the net effect of the Chancellor’s measures, the fiscal stimulus is just 0.1 per cent [of GDP].”
The move comes just eight months after the government said it was too soon to sell off more shares in RBS because the bank was still dealing with “legacy issues”.
The Edinburgh-headquartered bank is expecting a multi-billion-dollar fine from US regulators over mis-selling of toxic mortgage bonds and is fighting claims that a business restructuring division exploited its own clients to asset strip their companies.
Shares will start being offloaded by March 2019. At current prices, the government would make a £26bn loss on its 71 per cent shareholding. In April, Mr Hammond told MPS that he had to “live in the real world” and that fair value “could well be below what the previous government paid”.
At the March Budget, the Treasury stated “the need to resolve legacy issues makes it uncertain as to when [sales] will occur”. Yesterday’s Budget document stated: “RBS has made significant progress on resolving its legacy issues and refocusing on serving British businesses and consumers.”
In his speech yesterday, the Chancellor insisted the UK economy was strong and would “confound those who seek to talk it down”.
But Paul Johnson, the director of the Institute for Fiscal Studies, said downgraded growth forecasts meant the UK economy would be £65bn smaller by 2020 compared with expectations last year.
Mr Hammond told MPS he would use the “fiscal headroom” he gave himself by not paying off the UK’S debt until the middle of the next decade to invest in trying to boost productivity.
Part of that would be used to put aside £3bn for Brexit, most of which will pay for physical infrastructure at the border, in an announcement that will please Leave-supporting Tory backbenchers who had accused the Chancellor of refusing to plan for a no-deal scenario. However, the sum is greater than the £2.8bn being added to the NHS budget in England and Wales.
Mr Cable said “people will want to understand why we’re spending so much on lorry parks rather than putting it into the NHS”.
The Liberal Democrat leader added that RBS “still isn’t in a fit state” to dispose of the government’s shareholding.
He said: “We always argued in the coalition, and [George] Osborne accepted, that it would be utterly wrong to start selling shares before you can recoup the basic taxpayer outlay.”
Labour leader Jeremy Corbyn accused the government of “tossing fuel on the fire” of inequality despite Prime Minister Theresa May’s promise to tackle burning injustice.
Mr Corbyn predicted the Chancellor’s spending plans would quickly unravel and result in continuing “misery” for people across the country.
Replying to the Budget, the Labour leader described the government as having a “record of failure with a forecast of more to come”.
Mr Corbyn told MPS: “The reality test of this Budget has to be how it affects ordinary people’s lives.
“I believe as the days go ahead and this Budget unravels, the reality will be a lot of people will be no better off and the misery many are in will be continuing.” Unions accused the Chancellor of “letting down” millions of public sector workers in England and Wales, with no commitment to lift the pay cap in the Budget.
Mr Hammond said NHS staff would only get a pay rise if productivity improved before the next round of pay reviews in spring and summer, and there was no offer at all for council workers, civil servants and teachers.