Lack of competition is the real issue, not early privatisation

Sacking Stephen Hester to facilitate an early privatisation of Royal Bank of Scotland Group has stirred a new media storm but how long will it last? It deserves more than superficial attention. This is a short-sighted political fix which will do the economy and the taxpayer no favours. 

Hester has had a dirty job to do over the last four years – sacking 30,000 staff, selling off businesses, often for less than was paid for them, disposing of duff loans at huge losses – but he has done it well. Morale in the bank is hardly likely to be high, but he has a positive approval rating from staff and the City like him. The Chancellor, however, doesn’t and he holds more than 80 per cent of the shares.

 Lord McFall on Newsnight Scotland
Lord McFall on Newsnight Scotland


Selling the public stake in Royal Bank before the 2015 election will be a mammoth undertaking. Some £45 billion had to be pumped into the bank by the Government and to get that back in one go would be the biggest privatisation in British history, dwarfing BT, British Gas and British Rail.

The overhang of those shares is likely to depress the share price for the next few years and that, together with an economy which is flat-lining and continuing uncertainty in the Eurozone, make it a really hard job to get the taxpayers’ money back. Royal is in a much better state than it was when Hester arrived, but the job is not finished. It still has £40 billion of bad loans to dispose of, including the basket-case Irish subsidiary, Ulster Bank.

Hester is believed to have favoured a more gradual approach, with the Government trickling shares into the market over a number of years. Seems more sensible and more achievable.

But it would still leave RBS as a mammoth bank, with a balance sheet the size of the entire British economy and a commanding presence in domestic retail, business and corporate lending. Lack of competition is one of the fundamental problems in British banking – Lloyds and RBS between them have more than half the market – but the Government seems afraid to tackle it.

Breaking up RBS into regional banks – as Archbishop Justin Welby has suggested – would be one way to go about it. But that would take an extreme and radical politician to do that, someone like Ronald Reagan for example, who broke up the US telecoms giant AT&T, with massive benefits to the US economy in increased competition and innovation.

In case you missed it, you can catch Lord John McFall and me discussing RBS on BBC Newsnight Scotland on the iPlayer until 19 June 2013.

Ray Perman on Newsnight Scotland
Hubris himself on Newsnight Scotland