The problem with ‘People’s Bonuses’

Analysis of George Osborne's proposals that the Tories will offer 'small' investors the chance to buy shares in the bailed out banks at 'discounted' prices.

As a recent YouGov poll for the think tank Compass has shown, 75 per cent are worried that banks are still not being properly regulated. It feels all the worse now bonuses are looking so good at these, so recently destitute, financial institutions. But surely this discontent is no excuse for a potential future Chancellor to lose his marbles?

In his latest Sunday Times interview Mr Osborne proposes that a Tory government would offer ‘small’ investors the chance to buy shares in the bailed out banks at ‘discounted’ prices, likening the proposed scheme to Thatcher’s privatisations.

Of course this is a headline grabbing strategy to distract from the deficit cutting budget the Tories are proposing. But that does not excuse its stupidity:

1. We have all paid for these shares. Therefore if we sell them at a discount, we all lose out. We should be trying to sell them to investors at the highest possible price – nothing could be more obvious.

2. Ah, say the bright sparks in the Shadow Chancellor’s team – but these shares are being sold at discount to ‘small’ investors, so it is the ‘poor’ who will benefit. The idea that those who rely on free school meals, or income support, or publicly funded housing, will find a spare few hundred or thousand pounds to buy publicly traded shares is preposterous. Indeed, ‘small’ may well end up meaning the already financially astute and privileged, which further undermines the logic.

3. And what on earth are the Opposition doing proposing that the poorest in society should be ploughing whatever savings and wealth they have into perhaps the riskiest, and recently most volatile equity investment of all – financial stocks? The impact of these changes on bank stocks is uncertain to say the least. This is therefore very poor investment advice.

4. Osborne spoke about “recapitalising the poor,” a somewhat meaningless phrase given that many never had any capital in the first place, but also at odds with their other policy to reduce eligibility for the Child Trust Funds.

An explanation of both the principle and the practice behind Osborne’s proposal would be welcome – in its current guise, it appears to be the emptiest of policies.

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