Tell Sid: popular capitalism is back – but buyers beware

Encouraging the public to own shares is a great idea, says Matthew Lynn. But not if it means buying old-style banks.

In 1986 the UK government was selling off British Gas in what was the biggest privatisation up to that date. So it came up with a clever campaign to convince the public to buy the shares. "If you see Sid tell him" ran the slogan on advertisements across the television and billboards. More than anything else, "Tell Sid" came to symbolise the upsurge in share ownership during that era.

Now the government is thinking about a re-run. There are reports that a revamped Tell Sid campaign is being planned for the privatisation of the remaining government shares in Lloyds Bank.

Presumably the advertising agency charged with the task will come up with some fresh ideas. It's more likely to be Tell Damien, or Tell Sarah, since there aren't many Sids left and far more women work and invest than they did in the 1980s.

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It will probably involve Twitter feeds and viral videos instead of running two-minute commercials on ITV. Even so, if it goes ahead, the basic thinking will be much the same. The government holds £9bn of Lloyds shares, and the chancellor has already said he plans to sell those off in the next parliament. That is a lot of equity to get rid of, and healthy demand from private investors would certainly help keep the price up.

A successful campaign could help revitalise share ownership, which has been in long-term decline. Back in 1998, individuals owned 16% of UK-quoted shares, according to the Office for National Statistics. Today, the figure is 10.7%. That's because, while we are a significantly wealthier country than we were 15 years ago, we are increasingly likely to invest indirectly through unit trusts. There are two reasons for thinking that it might be desireable to reverse this trend.

First, investing directly cuts out management fees and the lower the fees you pay, the better the returns should be. Second, it encourages people to sympathise with business and enterprise. For the ideological, free-market Tories of the 1980s, there was more to privatisation than just raising money.

They believed that if people owned shares they had a stake in the system, and were more likely to support it. There may well be scope to do the same thing in this decade. Popular capitalism could certainly dowith a bit more of the "popular" in it.

The problem is choosing the right company. The big privatisations of the 1980s, such as British Telecom and British Gas, had plenty of growth in them. And the shares were sold relatively cheaply to ensure everyone made money.

It is hard to say that the same thing will happen with Lloyds, since it's part of a sector that looks acutely vulnerable to the next wave of technological disruption.Only last week, Facebook announced that it was introducing a payment system.

Meanwhile, Apple's Watch is partly designed as a payment device just swipe it in a shop or a bar, and you've paid. The tech giants have the financial firepower to threaten just about anyone. Google is spending $10bn a year on research alone, which will outgun anything a bank spends. It is not hard to see that it will be moving into the finance market at some stage.

Indeed, it seems extraordinary that the old-style banks keep trying to charge for something as simple as a bank account, when Google offers far more complex products, such as maps or email, for nothing.

In fact, web companies can offer superior services in many areas of banking. Peer-to-peer lending offers better rates to both savers and borrowers in personal loans and small business lending. Foreign currency payments can be made more cheaply via online services than through a bank.

A toxic investment

Meanwhile, our existing banks don't have an obviously defendable position in other areas,such as investment, or insurance, or mortgages. Nor do they have a great reputation to fall back on. After a string of mis-selling scandals, such as payment protection insurance, they have squandered whatever goodwill they might once have had. If there is anyone out there who likes their bankI have yet to meet them.

Meanwhile, they are lumbered with expensive branch networks at precisely the moment when their smartest and therefore wealthiest customers are heading online. Overall, high-street banking is an accident waiting to happen.

The travel agency business looks healthy by comparison and we know how many of them are left on the average shopping street. If ordinary investors put money in bank shares, then the risk is that they will be doing so at precisely the wrong time.

Even if the issue is priced attractively, that won't help if the industry is in long-term decline. And if it goes wrong, people will be put off the stockmarket even more than they have already been.

There are far better candidates for privatisation. The government hasbeen discussing selling Channel 4 for some time, with a value of about £1bn. That is a perfectly decent business with plenty of potential.

The Met Officemight attract lots of interest if sharesin the forecaster are finally sold. Both could do well over the long term. By all means Tell Sid to buy some shares. But don't tell him to buy them in Lloyds, or any other old-style bank.

Matthew Lynn

Matthew Lynn is a columnist for Bloomberg, and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years. 

He has written books on finance and financial topics, including Bust: Greece, The Euro and The Sovereign Debt Crisis and The Long Depression: The Slump of 2008 to 2031. Matthew is also the author of the Death Force series of military thrillers and the founder of Lume Books, an independent publisher.