=DJ UPDATE:UK Opposition Would Offer Public Discount Shares In Banks

   (Updates with further details, comments)

   By Laurence Norman
   DOW JONES NEWSWIRES

LONDON (Dow Jones)--The U.K. opposition Conservative party would offer discounts on shares to all U.K. taxpayers when it sells the government stakes in leading U.K. banks if elected, the party's economic spokesman said Sunday.

In a plan that would mirror some of the popular privatizations of public utilities by a previous Conservative administration in the 1980s, George Osborne also said special discounts would be available to lower income and younger taxpayers to encourage them to participate.

"Taxpayers bailed out the banks so they deserve a people's bank bonus when the times comes to sell the government shares," Osborne said in a statement.

"This is a golden opportunity to start building a savings society so that more people have a stake in the future of the economy," he said.

In comments to The Sunday Times, confirmed by his spokeswoman, Osborne said the Conservatives "will look at special offers, discounted share sales and the like" for younger people and those on low incomes.

The Conservatives, led by David Cameron, are the current favorites to win an election which must be held by June 3, although their poll lead has slipped in recent weeks.

The U.K. government invested some GBP43 billion into the Royal Bank of Scotland and Lloyds Banking Group at the height of the financial crisis and the government capital injection has since risen to around GBP70 billion.

The taxpayer now owns more than 80% of RBS shares and some 43% of Lloyds.

The stakes are being managed by U.K. Financial Investments which has said it could take a number of years to divest the stakes.

The Conservatives said they are still drawing up precise plans but that one option would be for people to purchase the shares through savings vehicles such as tax-free Individual Savings Accounts, to encourage savings. They also signaled that retail sales to taxpayers could be combined with offerings to institutional investors and other potential buyers.

The Conservatives will hope the plan for selling the bank stakes will capture the public imagination in the way that Margaret Thatcher's sales of public utilities like British Gas did in the 1980s.

However, the plan will raise doubts about whether the taxpayer will get the best price available. By preventing the banks being sold off as a going concern to another institution and pushing through an initial public offering in what are often choppy equity markets, a future Conservative government could see the shares rake in less income.

Liam Bryne, chief secretary to the treasury attacked the Conservative plan as a "gimmick."

"The Tories deficit reduction plan is now a certified farce. When it comes to the shares in the banks the public expect us to focus on getting their money back. That means selling them at a time and way that maximizes their value."

The smaller Liberal Democrats opposition party also slammed the plan, calling it "electioneering at its most cynical."

"Actively encouraging people on very low incomes to invest in a volatile share market beggars belief," said Vince Cable, the Liberal Democrats economic spokesman.

A spokeswoman for Osborne responded that the Conservatives would only sell the the bank stakes at a profit to the taxpayer. She also said the planned sales could take place at any time during the next parliament, which could end in 2015, leaving the Conservatives to pick their timing.

In the Sunday Times interview, Osborne again would not be drawn on how deep planned Conservative spending cuts would be this year or whether the party would raise taxes to pare down the deficit.

"People will notice a government that is getting a grip," he was quoted saying. "People will notice a new direction."

-By Laurence Norman, Dow Jones Newswires; 44-207-842-9270; Laurence.norman@dowjones.com

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(END) Dow Jones Newswires

February 21, 2010 09:07 ET (14:07 GMT)

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