Business secretary speaks out against rush to sell bailed-out bank, saying it could be used to make sector more competitive
The business secretary, Vince Cable, is urging the chancellor to consider breaking up Royal Bank of Scotland to boost competition in the financial sector instead of dashing to privatise the bailed-out lender.
He waded into the debate about the future of RBS after reports that George Osborne was hoping for a quick selloff. Cable said: “I don’t see the need for any haste.”
Sir Philip Hampton, the bank’s chairman, said on Friday that the clean-up of the battered lender would be “substantially complete” by 2014, allowing the Treasury to start selling shares before the general election. But Cable is keen to ensure that all options remain on the table, including breaking the bank up. “There’s a lot to be said for the idea of using RBS to create a more competitive banking sector,” he said. Insiders have argued that splitting up RBS would create insurmountable legal and practical problems, but Cable said: “You probably could create separate entities and I’m sure that would be healthy.”
Encouraging competition in banking is a key aim of the coalition and ministers were disappointed by the collapse last month of a deal under which the Co-operative Bank sought to buy more than 600 branches from Lloyds Banking Group, creating a powerful mutually owned “challenger bank”.
Cable said consumers and businesses had been left with even less choice than before the financial crisis. “It’s become very, very narrow, and it almost entirely consists of shareholder banks,” he said. RBS was bailed out by Alistair Darling, the then Labour chancellor, in the financial crisis in late 2008. It required two fresh recapitalisations the following year as the shaky state of its finances became clearer, receiving a total of £45bn.
With lending to small businesses in Britain’s recession-scarred economy still falling, despite a series of government initiatives, the future of RBS has become a fraught political issue. Senior figures, including the archbishop of Canterbury and former Tory chancellor Lord Lawson, have called for it to be broken up into a “bad bank”, with legacy loans from the boom years, and a “good bank” that would then be free to make new loans. Some campaigners have argued that it should be split into a series of regional lenders that could focus on small businesses.
Tony Greenham, of the New Economics Foundation thinktank, said: “It absolutely should not be flogged off: why would you turn the clock back to a banking system that was so manifestly dysfunctional before 2008 by just selling it back?” The share price of both RBS and Lloyds Banking Group remain well below the average paid by the government when it part-nationalised them.
Samuel Tombs, of Capital Economics, said: “The bottom line is that a selloff of the government’s stakes in the banks would be no quick fix for either the public finances or the problems in the lending market.”
But some Tory strategists believe that selling at a loss would be better than hanging on to RBS beyond the election. A Treasury spokesman insisted the chancellor was willing to examine alternatives to a full privatisation and denied any rush to offload the bank. “It’s a company that’s gradually returning to health, but it is gradual: it’s still quite a long slog,” he said.