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Giving away the family silver

By Tom Papworth
July 27th, 2009 at 12:38 pm | 5 Comments | Posted in Uncategorized

northernrockWhen the Thatcher Government began privatising the nationalised industries, the former prime minister Harold MacMillan is erroneously alleged to have likened the policy to selling the family silver. Whether or not one believes that the commanding heights of the economy should be in public or private ownership, however, one would hope that a decision by a government to dispose of something would at least see them receiving a return on their investment.

So a recent story in The Mirror leaves me at a bit of a loss. Apparently,

Gordon Brown could turn Britain’s nationalised banks back into building societies.

The Government wants to offload the two banks it wholly owns – Northern Rock and Bradford & Bingley – once the market conditions are right.

But ministers may insist any sale is conditional on them being turned into mutually-owned societies.

The plan has the backing of Labour MP John McFall, chairman of the Treasury select committee and a close Brown ally, and 29 more who are also Cooperative Party members.

They cite mutually owned societies as a “safer business model” who have been the main survivors of the credit crunch as they are owned by customers and so took fewer risks.

Now a mutual like the Nationwide could be given first refusal if and when Northern Rock goes on sale.

Forgive me if I am missing something, but are not building societies owned by investors, with their deposits and withdrawals technically being purchases and sales of shares in a company that inter alia provides a free share-dealing service in its own equity?

If this is true, I am not clear how the government can “turn Britain’s nationalised banks back into building societies” without giving them away. Shares would have to be given to all the depositors in proportion to their deposits. Nationwide could not buy Bradford & Bingley unless they effectively turned the B&B deposits/shares into Nationwide deposits/shares.

In theory, the Government could also hold an IPO in which further shares were sold, but who would buy into this IPO when all they were getting was a building society account?

This suggestion has all the marks of a daft idea cobbled together by mutualists who have not thought through what they are proposing. Either that or the Labour government is so sure that it is doomed that it is planning to rob its successor of any assets to privatise, thus exacerbating the crisis in the public finances to the point where it destroys the next government.

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