Wednesday, 19 April 2017

Philip Hammond and RBS: Time to live in the “Real World”

Today’s short and reactionary post is concerned with a recent statement made by the Chancellor of the Exchequer, Philip Hammond, in which he told the British taxpayer, and essentially every citizen, that ‘we have to live in the real world’ with regards to the news that the U.K. Government may be ‘forced’ to sell its stake in RBS at a loss. The troubled bank, which the Government pumped £45 billion of taxpayer money into in the wake of the Financial Crisis, has reported nine consecutive annual losses since it was bailed-out and only recently posted a massive £6 billion loss, as was discussed in Financial Regulation Matters, in addition to the looming threat of a massive fine from the U.S. Department of Justice, which some suggest may be as high as $12 billion. So, in this post, we will follow Hammond’s advice and ‘live in the real world’ – by assessing his performance and stance, as well as the situation in this ever-changing and increasingly fractious post-2016 world. For once, Philip Hammond is right – it is time to live in the real world.

Currently, RBS is trading at about 224p a share, which is substantially lower than the 502p average that the shares were selling for when the bank was bailed out. In August 2015, the then-Chancellor of the Exchequer, George Osborne, faced criticism for selling 5% of the Government’s stake in RBS at a £1 billion loss. This incredible and consistent deterioration of this huge banking institution is what has led Philip Hammond to make this recent statement, in which he continued by confirming that ‘our policy remains to return the bank to private hands as soon as we can to achieve fair value for the shares, recognising that fair value could well be below what the previous government paid for them’. However, if we take a step back for just one moment, and dissect the statement that came as the British citizen was commanded to attend the polling stations for the third time in three years, after repeatedly being told it would not have to do so, then Mr Hammond’s suggestion that we should live in the real world is a timely reminder to do so. In that vein, let us look at some important aspects.

Philip Hammond, the man who recently made the garish statement for us to live in the real world, is the son of a civil engineer and a University of Oxford graduate, attending the University at the same time as Prime Minister Theresa May did. He has had a number of high profile endeavours in the business world, although one in particular left creditors severely out of pocket. After graduating from the University of Oxford, and making his multi-million pound fortune in Construction, Hammond was elected as MP in 1997 for Runnymede and Weybridge, and steadily made his way up through the ranks of the Conservative Party – although he maintained his interest in his construction firm via an offshore trust that the Cabinet Office has ruled does not represent a conflict of interest. In relation to this, Hammond gave a wife a stake in the business in order to reduce his tax expenditure, a fact which one onlooker finds ironic that the ‘man who has spent years working out how to most efficiently use the tax rules is now in charge of crafting them. “He’s a poacher turned gamekeeper”’. Recently, in his role as Chancellor, Hammond has been making waves for reasons which have a distinct societal importance. Firstly, Hammond was exposed to an incredible amount of criticism over his decision increase tax rates on the self-employed, which saw him almost immediately back down. Then, only a few days ago, it was stated in The Independent that Hammond is facing calls from his own party to backtrack on a four-year freeze that his party placed upon working-age benefits, as the cap is now set to hit almost 50% more claimants than he had originally envisaged. So, taking Hammond’s advice and living in the real world, it seems only right to conclude that he is not just a Chancellor of the Exchequer, but a multi-millionaire from a privileged background who has conducted such an attack on the poor of this country that even Conservative Party members are urging him to relent – yes, the real world indeed.

In terms of RBS, the situation could not be clearer. The bank, which sought to defraud investors with despicable practices – investors, like pension funds and their members, that make up many of the electorate that will go the polls in June – will likely be returned to the marketplace after causing the taxpayer to suffer an incredible loss. Removing ourselves from economic thought processes for just one moment, the taxpayer bailed out a private company that had transgressed against them to the tune of £45 billion, and now will not see the entirety of that money back and the bank will be free to transgress again, safe in the knowledge that it will be rescued. The loss, which has already topped £1 billion and will no doubt run into the many billions, comes at a time when we are told that the NHS services in nearly two-thirds of the country are being cut back, which a report in the Journal of the Royal Society of Medicine recently blamed for causing 30,000 deaths in 2015 alone. According to a report conducted on behalf of the Office of National Statistics, the U.K. has nearly 4 million people living in persistent poverty16% of the United Kingdom is classified in this manner. In addition to these relative and incredibly distressing statistics, the Government, in responding to the rapid increase in mental health issues affecting British citizens, has cut up to £598 million from the relative budgets each year and this year added insult to injury by affording just £15 million for ‘crisis cafes’. These are just some, of the many instances of what the ‘real world’ looks like so, yes, it is time to live in it.

Ultimately, Mr Hammond’s call should be exactly what is needed. The country goes to the polls in June after, presumably, being subjected to a campaign trail that will focus on Brexit, not hospital cuts. It will focus on ‘needing unity’, and not how the most vulnerable in society have not only been dismissed, but are actually seeing their positions attacked and the funding that is supposed to help them extracted to cover the multi-billion pound support that successive governments have afforded to big business and the elite in society. This author urges anyone to actually listen to Prime Minister’s Question Time (as the Prime Minister will not be making any other public appearances on Television) and ask whether anyone has answers to these pressing problems. In reality, Hammond alluded to a ‘real world’ in which we must live, but, in truth, many of the country’s citizens do live in the real world and it looks nothing like the life that Mr Hammond returns to every evening.

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