Tag Archives: royal bank of scotland

Robbing Peter to pay Paul

I know that the British government doesn’t have much control over private enterprise, and it’s not desirable for them to have strict control over what companies can get up to. Can you imagine the situation if companies had to ask permission of the government before borrowing, lending, or buying interests in other companies – we would be similar to China.

But, the recent situation with Cadbury seems quite bizarre.

If Cadbury shareholders believe they have now got a good price for their shares then there is nothing to stop them selling to Kraft. That is just business and the emotional response to the loss of another British company is actually not fair – though it’s worth remembering that the majority of shareholders are just funds (pension funds) and so they have no emotion anyway. If British people want to prevent foreign investors buying into Britain, then that restriction would apply in the opposite direction too… Britain would find itself unable to invest in foreign businesses as a reciprocal measure.

But, Kraft had to borrow money to finance the deal. And the British bank Royal Bank of Scotland (RBS) financed Kraft. And Royal Bank of Scotland is 84%-owned by the British government, and therefore by the British people. So the British public are effectively financing a deal to buy their favourite chocolate manufacturer.

The government is claiming that RBS can’t be controlled like a government department, that it needs to operate as a regular bank so it can return to profit and that’s mostly correct. But surely someone must have seen this public relations disaster looming on the horizon? Billy Bragg has initiated a campaign where he is refusing to pay income tax, until the government starts controlling the publicly-owned banks – particularly the hefty bonuses bankers are already starting to pay themselves again so soon after the economic collapse.

Bragg won’t change much with this campaign. Even he acknowledges that the government will get their tax from him in the end, but he is demonstrating that the British public are not stupid. They care about how the banks behave and when they own a share of those banks they have a right for their views to be respected.

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