Editorial: Governments should not own banks

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Another year, another highly politicised row about bonuses at state-owned Royal Bank of Scotland. Nor is 2013 looking any less controversial than 2012. The institution bailed out to the tune of £45bn four years ago, and expected to report yet more losses next week, is all set to hand out an extra £250m to its staff.

That the Treasury is drawing up plans either to sell off the government stake, or to give it away to taxpayers, is therefore to be welcomed. Indeed, with this year's jamboree set to be even more jarring for taxpayers – in the light of the £390m fine for Libor-rigging levied this month – the case for a swift exit is stronger than ever. The Chancellor may have dodged the most obvious flak by specifying that the Libor penalty must be met by bank staff. But the stink over excess pay continues nonetheless, and the £800,000 bonus due to chief executive Stephen Hester is the subject of particularly impassioned debate. Yet George Osborne's options are limited. Simply slashing pay risks the recovery we, as shareholders, so desperately need. Here, in fact, is the nub: government ownership of a bank is fraught with tensions which cannot be resolved.

As such, the arrangement is best terminated. It will hurt the Exchequer, of course. Initial hopes of a profit from the rescue were swiftly punctured. And although the share price has shot up by more than a third in the past 12 months, there is another 40 per cent-plus to go before the state breaks even.

No matter. Better to cut RBS loose at a cost than to continue in attempts to reconcile the irreconcilable. The Chancellor will want to wait until the run-up to the 2015 election to put his plans into action. So blatant a piece of political bribery only emphasises the need to get the Government out of banking as soon as may be. The state should be gone from RBS before the next bonus season.

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