If there is one issue where destiny seems be demanding the Liberal Democrats to be bold, it is the issue of Britain’s dysfunctional banking system. Ninety per cent of the banking industry goes through the Big Six in the UK, some of which are not actually UK banks at all – and, in those circumstances, it is hardly surprising that they don’t do the job that needs doing. Funding local enterprise.
A fortnight or so ago, things were looking quite bleak, at least for the coalition’s will to act. George Osborne had indicated that he wasn’t going to force the banks to be transparent about their inflationary pay and bonuses. The Financial Times were reporting that an agreement was on the table that would have lowered bonuses this year in return for funding the Big Society Bank – and also promising not to act on banking structure independently (thus undermining the Vickers Commission).
Now, a fortnight later, things are looking up. The banks are being told by ministers to reduce bonuses and raise lending.
It’s a complicated issue. They have promised to raise lending before. We have had lending targets already. Politicians of all parties have yet to grasp the central fact in all this: it isn’t that the banks won’t lend, it is that they can’t. They no longer have local systems; their centralised risk software rules out nearly everything except loans on property.
Nor are bonuses that important in themselves. But politically they are very important indeed. So let’s just set out the argument at its very strongest: bonuses paid by the Royal Bank of Scotland.
We don’t know what they will be yet. But consider this, now that we are in the world of ‘we are all in this together’:
- RBS is loss-making again. Without the vast sums (bigger than the entire coalition cuts package published in October) in government support, they would be bankrupt.
- Along with three other UK banks, it has received getting on for £100bn (2009 alone) in support – plus Irish bail-out money which supports RBS’ crazy property loans made through Ulster Bank.
- RBS staff are public employees, like the health administrators or librarians currently losing their jobs.
- The bonus money will be public money.
I don’t know what the other banks are planning – and the US banks look set to pay inflationary bonuses to their employees this year of $7 billion – but let’s draw a line in the sand. No bonuses for RBS this year, or we are really and emphatically not in this together.
David Boyle is a fellow of the New Economics Foundation and a member of the Lib Dems Federal Policy Committee. He is co-author of Eminent Corporations.
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7 Comments
Here, here. It angers me to hear Conservative frontbenchers saying “we can’t treat the government-backed banks differently” then using that as an excuse to do nothing at all.
Not only are banks like RBS failing to support local enterprise, but they are also underwriting companies like Opus who take over accounts from other credit card companies then charge debtors interest rates of around 40%.
How is this justified?
It ought to be pretty simple eh? They’ll still fight to the last though.
So RBS doesn’t pay bonuses. Leaving aside the fact that they probably have some contractual obligations, what do you think would happen? They will lose their best people (those who haven’t let already) to other banks.
They have already lost people, particularly in the US and Asia. The only effect of this will be to further reduce the value of the bank.
Why on earth would anyone who works in a profitable part of the bank carry on working there?
However much you should like to think otherwise there is a fundamental difference between bankers and librarians. Noone else is willing to pay librarians more money, lots of firms would pay high performing bankers more.
No bonuses for RBS this year, or we are really and emphatically not in this together.
Doesn’t most of their pay come in form of end-of-year bonuses? So you are, in effect, demanding a pay cut of ~ 90%.
Seems a bit steep.
And meaningless, because RBS will just do what it has to to keep staff, and quietly raise their base pay instead.
ad – ‘And meaningless, because RBS will just do what it has to to keep staff, and quietly raise their base pay instead.’
Perhaps – but is that such a bad thing? Personally I do not throw my hands up in horror at banker pay in and of itself. The problem to my mind was not the bonus (however that is defined) in itself, but the incentives that surrounded them and the need to pay them out of pots where the liquidity should have been.
Higher base pay with a much lower bonus payment, a large portion ot paid as shares might not be the worst way to come at this,
I don’t throw my hands up in horror either. Bonuses would not be an issue in the same way if the banks were doing an effective job lending money to keep the wheels of local enterprise rolling. They are not. For the last couple of years, 70 per cent of their lending has been on property deals, fuelling the next property bubble. If they were just ineffective, that would be one thing, but they are actively corroding the productive economy – not to mention creaming off huge sums from our pensions.
If we had an effective banking system, bonuses would not be an issue. Nor is a permanent ban on bonuses an effective option for the reasons you say. But right now, when they are far less effective than other parts of the public sector, paying bonuses – which are not 90 per cent of salaries (where did you get that idea from? – would be politically suicidal.
If RBS employees are just like civil servants, can we expect them to get civil servant-like levels of protection from performance measurement, high pensions and much lower hours?
RBS is a Bank, albeit one mainly owned by the state. It’s in everyone’s interests for the bank to operate as a commercial concern – if more money could be made/ saved by just not paying people market rate, then I’m sure HSBC would have got their first.
As an aside, I’ve never understood the activists call to remove performance-related pay. In what way is it better for people to get paid no matter how they and the business do?