RBS: Why we should be angry at the Chancellor's willingness to sell the taxpayer's stake at a loss

Philip Hammond is prepared to contemplate pouring billions down the drain to rid himself of a political problem

The Chancellor is prepared to write off tens of billions of pounds to get rid of the banking industry’s problem child (Reuters)

Philip Hammond’s policy on Royal Bank of Scotland resembles that of a market trader with perishable goods to dispose of at the end of the day.

Roll up, roll up. I’ve got a bank ’ere going cheap. Half price and three for two. Take this off my hands! It’s got to go!

He didn’t quite put it that way when he warned MPs that billions of pounds in tax payers’ money are likely to be poured down the drain on the day his boss announced the general election (and there could hardly have been a better day to bury the bad news).

No, what he said was a little more wordy, and a little more official sounding. We have to “live in the real world”, he explained. “Our policy remains to return the bank to private hands as soon as we can achieve fair value for the shares, recognising that fair value could well be below what the previous government paid for them.”

The problem with that, of course, is the message it sends to the City. It says to investors that it’s pointless to buy into RBS at anything other than a knock-down price. It encourages them to behave like the people who will frequent markets late in the day because they know there will be bargains to be had.

If you know the majority shareholder is willing to take a thumping loss, why pay more? Mr Hammond has, with his words, put a rock solid ceiling on the price.

There was no reason for him to do so. The difference between our market trader and Mr Hammond is that the latter’s goods are not perishable. He can wait to sell RBS for as long as he wants.

He has already made it clear that the state, which spent £45bn on bailing RBS out remember, won’t sell until the small matter of a vast forthcoming US penalty for the involvement RBS had in selling dodgy mortgage-backed securities in the run up to the financial crisis is settled.

Then there is the bank’s previous scandalous treatment of small business borrowers, which also needs to be dealt with, not to mention a lawsuit being brought by shareholders over the bank’s £12bn rights issue during the financial crisis. The case will be heard at the High Court next month in the absence of a settlement.

With all that to be put to bed, there are quite a few years to go before the sale process can realistically be restarted, which makes the latest statement all the more questionable.

But the Chancellor’s announcement isn’t only flawed when it comes from a tactical standpoint, however. There is also a principle at stake.

The Government has made great play of the importance of being fiscally responsible, and of (eventually) balancing the budget. That’s what that national insurance rise for the self employed (since reversed) was all about. And all the cuts imposed on the most vulnerable in society.

That’s why pay rises for teachers, nurses, doctors, have been capped so that their salaries have started to fall in real terms. We have to live within our means!

Yet here is the Chancellor saying the Government is going to accept flushing ten, twenty billion pounds down the toilet purely because it wants the political problem of RBS off its hands.

We can’t find that amount to fix the NHS. But we are prepared to write it off to get rid of the banking industry’s problem child, relieving the Government of the embarrassment of having to approve seven-figure salary packages for top execs when it comes to the annual vote on the remuneration.

At any other time, the fact that a Government was willing to contemplate such a huge waste of taxpayers’ cash would create outrage, prompt critical reports from select committees, questions in the house.

With Brexit, a shock general election, and all the other problems the country faces, it’s rather getting lost in the wash. Which makes life much easier for the man in No 11 Downing Street and no doubt informed his decision to announce the policy on the day the election was announced.