George Osborne considers using £45 billion profit from nationalised banks to fund economy-boosting tax cuts

Tim Montgomerie

If the Chancellor of the Exchequer's first budget was about cutting the deficit his second budget is likely to be all about economic growth. That is the hope I expressed in my Sunday Telegraph column and the News of the World (£) suggests that on 23rd March 2011 George Osborne will, indeed, unveil a "Budget for Growth".

Measures such as scrapping the 50p rate of tax, lifting more low income workers out of income tax altogether and restoring the schools building programme will be financed by what some now expect to be a £45 billion profit from privatising the bailed-out banks, RBS and Lloyds-TSB:

"Chancellor George Osborne is set to give the economy a £45billion boost - with profits from Labour's bank bailout. He is ready to sell shares in Lloyds TSB and RBS and use the cash windfall to get the nation's economy moving again. The shares are currently valued at less than the £76billion Gordon Brown's government paid in their 2008 rescue package. However, City analysts say that announcing their sale would almost double their price. That would net a profit of £30billion from the sale of RBS, where the government has a 68% stake, and £15billion from Lloyds, where it owns 41%."

That assumption of a doubling in price is a big assumption. Other estimates have put the windfall at something closer to £30bn.

I hope the News of the World is correct and Mr Osborne, increasingly the dominant figure in this government, will use the money for economy-boosting measures. The pressure will be enormous, however, particularly from the Liberal Democrat part of the Coalition, to use the proceeds to reverse spending cuts. The Chancellor should resist those calls and use the money to fund measures that will increase British competitiveness. A strong economy is the best long-term guarantee of decently-funded public services.