Alexander Tredwell – Leaders in Specialist Professional Recruitment
The chancellor has postponed the sale of the government’s final stake in Lloyds Banking Group, saying the global turmoil in the markets and slowing growth had sparked the delay.
George Osborne said that he would not give the go-ahead until the markets had calmed, saying that “now is not the right time”.
He said he still supported encouraging wider share ownership in Britain.
The taxpayer still owns just under 10% of the bank.
The sale of the final part of the government’s stake in Lloyds was a general election pledge made by Prime Minister David Cameron.
It was expected to raise £2bn, making it one of the largest privatisations since the 1980s when BT and British Gas were sold, raising £3.9bn and £5.6bn respectively.
Mr Osborne announced the details of the Lloyds sale to hundreds of thousands of small investors last October.
It was thought the sale would take place in the spring.
But since then Lloyds’ share price has fallen and the trading environment for banks has become tougher.
Low-interest rates also make profits harder to come by across the sector.
In October, Lloyds share price was 78p, above the 74p considered to be the “in price” the government paid to rescue the bank during the financial crisis – when it used billions of pounds of tax-payers money to shore up the financial system.
That share price is now down at 64p, so the government would be selling the shares to the public at a considerable loss.
Mr Osborne told BBC News that his “principal concern” in deciding to postpone the sale was turbulence in the financial markets, despite “hundreds of thousands” of private investors being “interested”.
“I want to create a share owning democracy and I want to give the British people a chance to buy shares in Lloyds bank, a bank that they had to bail out. It is also my responsibility to make sure we have a secure and sound economy and with these turbulent financial markets it wouldn’t be right to have the Lloyds share sale now,” he said.
“There will be a sale of shares [in] Lloyds but only when the time is right for people.
“We need those markets to calm down, and then we can proceed with the sale. We’ve got hundreds of thousands of people interested in buying these shares, I want to sell them the shares, but it wouldn’t be right to undertake that sale when frankly things are pretty turbulent out there on the stock markets and the global financial markets.”
September 2008: Lloyds takes on collapsed bank HBOS
October 2008: Labour government reveals it has bailed out Lloyds, taking a stake of 43%
April 2010: Lloyds announces a profit for the first time since the crisis
September 2013: Coalition government starts return of the bank to the private sector, selling part of its stake to major institutional investors
October 2015: Conservative government says it will sell its final stake in Lloyds with shares offered to private investors
January 2016: Chancellor George Osborne says the sale is being delayed owing to turbulent markets.
On Wednesday, the Royal Bank of Scotland (RBS) announced billions of pounds of new provisions to pay for fines and legal actions connected to the financial crisis.
Its share price has also fallen.
The government owns 73% of RBS and just under 10% of Lloyds. It does not look like it will be selling either stake any time soon.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “This will be a big disappointment for the hundreds of thousands of investors who had queued up for a chunk of Lloyds, but taking a big loss on selling shares when markets are low was always going to be a bridge too far for the chancellor.
“The timetable for the share sale has always been vague being ‘spring’ of 2016. The government are looking to obtain a good price for the remaining 10% of the Lloyds Banking Group they own and timing to get the best value around issues such as the Budget, financial and tax year end and Lloyd’s own financial calendar was always going to be tricky.
“Market volatility in recent months has seen UK stock market values fall by around 20% since the April 2015 high, so its understandable that the share sale is being delayed.”
This decision comes after sales of publicly-owned assets, including Royal Mail and Eurostar, raised more money for the government in 2015 than any other year in history, according to new analysis by the Press Association.
A total of £26.4bn was made through privatisations, beating by almost £6m the previous record set in 1987