Tories study banks privatisation plan

Ordinary investors would be offered the chance to buy shares in nationalised Lloyds Banking Group and Royal Bank of Scotland under plans being worked on by the Conservatives, it was reported today.

Shadow Chancellor George Osborne is considering a privatisation programme similar to that of the "Tell Sid" British Gas campaign in the 1980s should the party succeed at the upcoming General Election, according to the Financial Times.

The British Gas privatisation was hailed a great success, tripling the number of UK shareholders - and the Conservatives reportedly believe that adding ordinary voters to bank investor bases now would go down well with a nation looking for a greater say in how they are run.

It is thought that City bankers have been pitching the idea to Mr Osborne, who is also said to see it as a wise move politically, although plans are still at an early stage.

Price could be a sticking point, as shares would have to be offered to retail investors at such a level that would be attractive.

Any government would have to ensure a good return on its holdings in the two banks, after pumping billions of pounds into the bail-out since last autumn's financial meltdown.

The Government currently owns 43 per cent of Lloyds and more than 70 per cent in Royal Bank of Scotland.

RBS shares have only recently risen past the average level paid by the Government, but Lloyds shares are still low despite a recent banking sector rally.

And the eventual size of the state holdings could rise further still with the details of the pending toxic asset protection scheme yet to be confirmed.

The banks are looking to insure against their risky assets with the Government, but this in return is set to see taxpayers take an even bigger stake.

Chancellor Alistair Darling has already said he will hold on to the stock for as long as necessary to get a good return in order to ensure taxpayers are not left out of pocket and has suggested that any share sale would be staged over a number of years.

It is thought that the Government's other bank, Northern Rock, may be among the first to go back into private hands, with suitors understood to be lining up to buy its branches and savings business.