Alistair Darling’s (or rather the EU’s) plan to spin off chunks of RBS, Lloyds Banking Group and Northern Rock gouges out another £40bn of taxpayers’ money for the banks, in addition to the £50bn already expended on their various bail-outs. Given that the sums concerned are so gigantic and that this is being done at the expense of painful cuts for everyone else, this involves just one scandal after another. First, the £26bn being given to RBS raises the taxpayers’ stake to no less than 85%, yet the bank is still being left operating via the UKFI effectively in private hands, with no attempt whatever being made to restructure the bank towards prior industrial, community and social needs, ie. no public control, just socialisation of the losses. Second, it is outrageous that the taxpayer is expected to stump up another £5.7bn simply to enable Lloyds Banking Group to avoid having to pay the insurance fee for the asset protection scheme, when as everyone knows the State would still have to bail out Lloyds if it collapsed in future. Third, Government policy on Northern Rock is all over the place – originally to run it down to sell it off again, then to build it up because of the famine in the mortgage market, and now to split it up under EU dictat.

The Government of course had no intention of spinning off big bits of these banks, but has lost control of policy to the EU Competition Commissioner, Neelie Kroes. But with bank policy now being made in Brussels, there will be big disadvantages for the UK. First, it must be uncertain whether these spin-offs will work. They will be small fish in a big fish pond, and their long-term chances of survival against pressure from their much larger competitors must be equivocal at best. Second, it is all too likely that new purchasers will be foreign banks so that the UK will lose control of yet another strategic component of its economy. Third, the real problem is that the main banks are far too big, and cutting down RBS and Lloyds to size will still leave HSBC and Barclays over-dominant. Yet EU policy (let alone laissez faire UK policy) is not addressing this fundamental issue.
The real answer to the current banking imbroglio is to break up the excessive size of all the biggest banks, separate off the traditional retail side from the casino investment side, and re-mutualise many of the retail elements which would be infinitely less costly to the taxpayers and infinitely more secure to the depositors. The Government really must put an end to being mesmerised by the bust out-of-control casino market model of banking which costs the taxpayer such gigantic sums in danegeld and is prone to such deep instability.

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