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RBS Shortfall Leaves Osborne Facing Budget Hole as Shares Drop

  • U.K. had aimed to sell 5.8 billion pounds of shares this year
  • RBS shares have fallen more than 30% since goal was set

U.K. Chancellor of the Exchequer George Osborne is facing a potential shortfall in the nation’s finances ahead of his annual budget as plans to sell Royal Bank of Scotland Group Plc shares stall. 

Whipsawing markets and a split within the government ahead of Britain’s June 23 referendum on European Union membership mean the chancellor probably won’t meet next fiscal year’s goal to raise as much as 5.8 billion pounds ($8.3 billion) from selling RBS shares, according to officials, who asked not to be identified because the discussions are private. The lender’s stock has dropped more than 30 percent since the sale target was set as the company posted an eighth consecutive loss and pushed out plans to pay a dividend.

Generating less cash from selling RBS shares, as well as other potential delays to sales of assets leftover from 2008 bailouts, is another threat to the government’s goal of balancing its budget. Osborne last month warned that he may make further cuts in public spending amid an economic recovery that hadn’t advanced as he hoped.

The delay also reflects the increased political pressure on the chancellor in the run-up to the referendum. Last week, the Treasury said it dropped a plan to overhaul pension tax relief after pressure from industry groups and fellow Conservative lawmakers. On Wednesday, a proposal to extend Sunday trading hours announced in last year’s summer budget was defeated in the House of Commons after opposition from within Tory ranks.

Lloyds Delay

This would not be the first share-sale target Osborne has been forced to abandon as risks to his economic and fiscal forecasts increase. Last month, he shelved plans to sell some of the government’s stake in Lloyds Banking Group Plc to consumers. The sale, which was previously scheduled to be announced in Wednesday’s Budget, has been postponed until at least the end of March.

The Treasury may revive plans to sell RBS stock in the summer, according to a Treasury official. And while the Lloyds sale would take little time to set up, market volatility in the run up to the referendum and local elections in May make it equally unlikely, as the political cost of a slump in price following a sale to retail investors would be too high, the official said.

Spokesmen for the Treasury couldn’t immediately be reached for comment outside of normal business hours.

Osborne last year laid out plans to raise 5.8 billion pounds in each of the next five fiscal years, which begin on April 1. He has since seen the value of Britain’s 73 percent stake in RBS, rescued in the biggest banking bailout in the world at the height of the financial crisis, fall to about 19.4 billion pounds. He’s also come under scrutiny from lawmakers for his decision to sell some of the taxpayer’s stake at a loss last year.

“The likelihood of an RBS share sale this year is minimal,” said Ian Gordon, an analyst at Investec Bank Plc with a buy rating on the stock. He said a disposal is probably “on the back burner” until the bank gives investors greater clarity on its plans to pay a dividend and until after the government sells more of Lloyds.

Disposing of financial assets and government-owned companies such as Royal Mail Group Ltd. form a central plank of the chancellor’s agenda to reduce the nation’s budget deficit. The government sold 2.1 billion pounds of its RBS stake in August, getting a lower price than the one at which the bank was bailed out.

Brexit Obstacle

Osborne has previously defended selling RBS shares at a loss because he’s been able to sell loans issued by collapsed lender Northern Rock Plc and dispose of a stake in bailed-out Lloyds at a profit. However, he was forced to postpone sales of the nation’s remaining 9.2 percent stake in Lloyds earlier this year amid a stock slide and turbulent global markets. The government is currently considering ways to sell some of failed lender Bradford & Bingley Plc’s 26 billion-pound mortgage portfolio, people with knowledge of the matter have said.

Britain’s vote on continued European Union membership is threatening to undermine his efforts this year, as Osborne and Prime Minister David Cameron stake their reputations on keeping Britain in the bloc.

“Markets as well as politicians are finding Brexit talk is sucking the air out of everything else,” said Tim Bale, a professor of politics at Queen Mary University of London. “The referendum is not a foregone conclusion so a lack of action on other things until this is over is excusable. But there is a growing list of things, including RBS, that people are going to be knocking on his door about once the referendum is over.”

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