Private investors could be given the chance to buy into Lloyds at a discounted price before the end of this year, as the Chancellor takes advantage of the bank's share price rocketing over the past year.
Rumours of a shares sale have emerged suggesting the Chancellor is getting ready to use his Mansion House speech on June 19 time to announce such a move.
But that idea could be derailed by a rival plan floated by think tank the Policy Exchange today, which has delivered a fresh call for taxpayers to be given free shares in Lloyds and RBS worth about £1,500.
On a roll: Lloyds shares have more than doubled over the past year as investors have shrugged off banking crisis fears.Lloyds shares are currently trading at at 62.4p, having soared from the 28.5p they stood at 12 months ago. RBS shares are trading at 331.5p up 51 per cent on the 220p they stood at a year ago.
The Policy Exchange blueprint suggests that up to £34billion of the government’s £48billion of shares in RBS and Lloyds could be given to the nation.
Every British resident over the age of 18 who has a National Insurance number and is registered on the electoral roll could apply for a share.
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This would see 50 to 55 per cent of shares in RBS and 30 per cent of the nation’s shares in Lloyds being handed out to taxpayers at no initial cost.
They would instead be paid for when they were next sold on, allowing the investor to keep any profit and use the proceeds of the sale to pay for their shares.
For taxpayers, this could mean between £1,100 and £1,650 worth of shares being allocated depending on the number of applicants.
The report estimates that between 20 and 30 million would apply, meaning a likely stake of around £1,500. A floor price would be established at the original level the shares are sold. If the share price falls under the floor, no-one would be expected to want to sell since they would not profit at all.
That plan goes head-to-head with reports that emerged yesterday suggesting George Osborne could announce a Lloyds share sale imminently, capitalising on the bank’s share price having more than doubled over the past year.
The public will be offered the chance to buy the shares at below the market price and at a level below that offered to big investment funds, with incentives built in to encourage people to hold them for a number of years, according to the Sunday Times.
But a report in today's Financial Times claimed the Treasury is only considering the sale of an initial 10 per cent stake in Lloyds before the end of this year and any suggestion there is a fully-formed plan to return the bank to private ownership is no more than speculation.
Mr Osborne is said to believe that the time is right to return Lloyds, which also includes Halifax Bank of Scotland within its group, to the private sector, although it is not known whether the entire £17bn state stake will be disposed of at once.
The current share price puts the Government at breakeven on the price paid for shares to bailout Lloyds at the height of the banking crisis.
Critics of plans to sell the Lloyds stake owned by taxpayers claim that this will simply be selling shares to the public that they already own.
The Treasury declined to comment on the plans for a Lloyds sale, but last month, Mr Osborne said: ‘Having refocused their business, now is the time for a clear strategy on how to return RBS and Lloyds to the private sector in a way that protects value for the taxpayer.
‘We need functioning banks supporting the real economy, instead of nursing their wounds, and I'm determined we'll deliver it.’
Rescued: Lloyds Banking Group had a stake sold to the taxpayer to save it at the height of the banking crisis, now cheap shares could be offered to the nation.Last month Lloyds announced it had made a £2billion profit in the first three months of the year, up from £280million in the same period last year.
Shareholders breathed a sigh of relief that it was not having to put aside any more to compensate mis-sold payment protection insurance victims, having already allocated £6.8bn to its bill for the scandal.
But it has yet to turn an annual profit since receiving a £20billion bail out in 2008.
Lloyds Banking Group chief executive Antonio Horta-Osorio, told shareholders at its AGM, last month: ‘We expect us to return to profitability this year and to grow our core business, to realise our full potential to deliver strong, stable and sustainable returns for you, the shareholders, and to allow UK taxpayers' investment in the group to be repaid.
The bank’s army of small shareholders has been cheered by the dramatic rise in the bank’s share price after it fell as low as 25p at the end of May 2012.
But Lloyd's shares remain considerably below the 280p level they were trading around before the bank's arranged marriage with HBOS, in September 2008, leaving long-term shareholders out of pocket.
At that point Lloyds shares were already staging a rapid descent from the 450p they had stood at the start of 2008.
Those who took a punt on the bank’s rights issue in December 2009 to buy more shares at 37p and have held them since, have turned a 65 per cent profit on that purchase.
