Free bank shares? Nice try, Clegg, but will it work?

Deputy prime minister Nick Clegg is pushing for government-owned shares in Royal Bank of Scotland and Lloyds to be distributed free to the British public in recognition of their part in saving the banking system from collapse in the wake of the 2008 financial crisis.

The banks were bailed out by British taxpayers to the tune of £66bn, leaving the government with 84 per cent of RBS and 41 per cent of Lloyds.

The Treasury has said it will consider the deputy prime minister's plan - proposed by another Lib Dem MP in March - but the details are so far sketchy.

For example, will everyone get shares in the banks, or will it be only taxpayers? If everybody over 16 was included in the scheme, around 46 million people would get shares, according to the Conservative think tank, the Centre for Policy Studies, which published an appraisal of the policy in May.

Under their proposals, each person would receive 1,450 shares in RBS and 450 shares in Lloyds.

So that the Treasury recoups its bailout money, a 'floor price' would be set for the shares. Individuals could only sell their shares above this price and would only receive profits above and beyond this.

For example, the floor price for RBS shares would be around 51p. If the individual waited until the value of the shares increased to 60p before selling them, they would receive 9p per share, and the Treasury would get 51p.

Don't be fooled..."Even free shares can be injurious to your wealth," writes Ian Cowie, who already owns RBS shares, in the Daily Telegraph.

He points out that many shareholders in former building societies such as Northern Rock, the Halifax and Alliance & Leicester only became involved because they were savers and borrowers at the time the mutuals floated on the stock exchange. Many topped up the shares with their own money. After the credit crunch, "not one of the building societies that became a bank remains an independent going concern".

Cowie concludes "there are good reasons to look Mr Clegg's gift black horse in the mouth. Long and hard."

If you want cheap shares in RBS, buy them now. "If the public want to buy bank shares quite cheaply they can do it now," writes Jim Pickard for the FT. Shares in RBS and Lloyds are both significantly lower than a point at which the Treasury is likely to hand them to the public - and you wouldn't need to hand back the 'floor price' to the government.

It's a smart move from unpopular Clegg. "This smacks more of the embattled Lib Dem leader's need to bolster his popularity than of a genuine experiment in popular capitalism," writes Jonathan Guthrie in the Financial Times. "If George Osborne agrees to the scheme, he will have meekly followed Mr Clegg's lead. If he rejects it, he will look like a Blue Meany."

Guthrie doesn't believe that the plan will lead to any meaningful expansion in popular share ownership, but it would "have the amusing result that millions of disgruntled Britons could, if they chose, vote on the remuneration of bank bosses".

Right-wing blogger Guido Fawkes agrees. Observing that the Lib Dems are languishing at 11 per cent in the polls, he points out that the plan will take a while to come to fruition. "Clegg will be hoping people will be able to cash out at a convenient time... Sometime around spring 2015 would be ideal." ·