In an interview for the Observer magazine’s “This much I know” feature, Vince Cable has shared his life lessons.
He shares his incredulity that anyone needs a salary/bonus of over £1 million to live on:
I don’t understand why people need a million quid a year. I’ve asked one or two of the more sympathetic bankers to explain it to me. The response has been: “It’s not that I need the money, it is because others get it so I should, too.” That is a ludicrous mindset. What on earth do these people think they are doing?
He talks about his family background, with a domineering father who was not shy about expressing his opinions, seemingly to the exclusion of all others. His love for his mother is very clear, as it was when he spoke of her at Spring Conference last week. He shared then how he had been put under immense pressure to cut adult education, but because this was the route by which his mum had rebuilt her life after a nervous breakdown, he refused point blank to do so.
He may be 70, but he’s not going to let age define his approach to life:
Age itself shouldn’t stop you doing anything. I have just returned from a skiing holiday. I dance, I do a lot of cycling. At 70 I’ve surprised myself by having bags of energy. We have gained at least 10 years of health and fitness on our parents’ generation.
If, by the way, you want to see Vince on a bike, check this report of a visit to a BMX track out. I can’t believe he isn’t wearing a helmet, though.
His optimism, he says, has been “tested to destruction” but still survives:
The sense that the world tomorrow will be better than the world today is what keeps me going. That belief has been pretty much tested to destruction in recent years, but I still hold on to it, because what else is there?
It’s that optimism that convinces him that history will judge the Coalition well, but he could have got the party mane right:
I think history will judge the coalition far more favourably than our contemporaries have done. I don’t fear for the future of the Liberal Party. In 20 years’ time [the coalition] will be judged as a very necessary government.
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37 Comments
I thought this was Vince playing up to the Guardian gallery a bit. A million pounds before tax is not really enough to retire on and he knows it is more than about envy. Before the left scream we should consider the fact that many teachers pensions are worth a million pounds (although pensions going forward have been cut).
What I don’t like about bankers pay is the fact it is so heavily state subsidised (mainly through low interest rates). I was hoping this is what Ed Balls was referring to when he said it was “a bit of a ponzi scheme”, but he never went that far.
The party “mane”? Oh, Newshound..
A rather unkind slip of the fingers on the keyboard under the circumstances, when discussing Vince, don’t you think?
Apart from his steadfast refusal to even consider taking rail operations back into public ownership or even to insist East Coast remain there, I’m a huge fan of Vince, particularly his intelligent approach to industrial policy, training etc. He shows that we as a party are not destined to adhere to the bone-headed Orange Book mantra of “state intervention is bad”.
Why should anyone get £1million a year? Market forces. Supply and demand. That’s why footballers get paid so much, there is a large demand but only a small supply. The same applies to anyone in any job, they get paid what the market thinks they’re worth. What they think they’re worth, what others think they’re worth, don’t matter. If there were a larger supply of people capable of doing the job, the demand would go down and so would their salary.
I’m worried that this is populist nonsense from Vince.
My assumption is that an overwhelming majority (not including me, as it happens) of the public would be equally “incredulous” that any politician “needs” a salary of £135,000 to live on.
Why people need to earn £1 million a year is a very strange question to ask.
If the criterion is the bare minimum a human being needs to survive on, then it’s very much less than that, and very much less than Vince Cable’s salary too. On the other hand, if an acceptable answer is “Because I have taken on non-essential commitments that cost me that much”, then the sky’s the limit.
Bankers are not paid high wages because of market forces. It’s simply because they e sit near the tap. Anyone of them could be replaced by any other one of them. The wealth of footballers, actors, and pop star etcs is decided by popularity. If they fail at the box office they move down a league, make lower budget films or tour more. Bankers on the other hand decide their own worth and refuse to take the hit when they mess up. Market forces have nothing to do with it and in fact when things are going wrong they tend to pay themselves even more to put it right. Personally, I think most of them should have lost their shirts in 2008 and some of them should have felt the full force of the law.
I think Simon Shaw’s right (and I’m not sure I’ve ever said that before…)
Most people think that their own income is somewhere between the bare minimum that they need and a just recompense for their own hard work; and that nobody “needs” to earn an awful lot more than that… Very few of us would actually refuse to accept a salary on the grounds that it was too much. Probably not even Tony Benn…
@Graham – if only the compensation really was warranted by the talent. Unfortunately that is not actually how it works. Consider your football exampke: the wages bill of QPR last year (they got relegated) was higher than the German winners of The Champuons League. Talent justifying remuneration?
“Age itself shouldn’t stop you doing anything. I have just returned from a skiing holiday. I dance, I do a lot of cycling. At 70 I’ve surprised myself by having bags of energy. We have gained at least 10 years of health and fitness on our parents’ generation.”
Lucky old Vince! But then, he does happen to live in the borough with the longest healthy life expectancy in the entire country (70.3 years for the men of Richmond upon Thames). If he lived in certain places elsewhere (such as Manchester or Tower Hamlets) then he would probably have been too clapped out for a skiing holiday around 15 years ago.
http://www.dailymail.co.uk/news/article-2424383/Richmond-Thames-place-long-healthy-life.html
It really is quite worrying that our well-off and healthy elderly politicians seem to think they are just like everybody else.
@ Malcolm Todd
I may also share that assumption. But I sometimes agree with Simon — it just doesn’t do to let him know. I don’t share his gratuitous description of Vince Cable’s statement as “populist nonsense” but he may be right that for people on the average national income ( is it still less than£30k a year?). a minister’s salary sum is probably just as remote as a footballer’s or Prince Charles’ unearned millions.
I do day-dream out loud with my wife about winning the Euro Millions — the prize was £107 million this week. We used to harbour a notion of investing enough money in the Liberal Democrats in Blackburn to unseat Jack Straw even if it took millions. Studying the newspaper reportto out the winner of this week’s £107 million it revealed that according to the Rich List—- 470 people already own up to having more than this! Then there is today’s report that five families have more wrealth that the combined wealth of 20% of the entire population !!!
My guess is that those people who are being told that the world is a wonderful place because they are paying less tax than they might have been will think about the 470 fellow citizens who have more than the winner of the Euro millions. More than their dreams! Vince Cable’s reaction when the bankers answer his question seems in line with what ordinary people would think. Honest good sense, not populist nonsense. There is a difference between populist and popular.
Agree with Simon Shaw, this is just more popular nonsense we’re seeing from Vince.
Based on my experience, I suspect that what we’re actually seeing in many of Vince’s recent comments are symptoms of early stage dementia….
Roland 17th Mar ’14 – 9:21pm
Offensive ageist crap from you then ?
“I don’t understand why bankers need to earn a million quid a year”
That Vince doesn’t understand doesn’t trouble me in the slightest.
That I don’t think they are personally worth such ludicrous salaries is likewise of no matter.
When we abandon Anglo-saxon capitalism for Rhine Capitalism that equation will change, but we aren’t there…
Graham Martin-Royle
Why should anyone get £1million a year? Market forces. Supply and demand. That’s why footballers get paid so much, there is a large demand but only a small supply.
OK, but are the skills of bankers highly unusual skills that only a few people have? It seems to me that they are general administrative skills and calculating skills, not that different from those required in many other jobs which get paid far less. Do you have to be much more clever to be a banker, for example, than a doctor, or an engineer, or a computer programmer, or many other jobs? Are bankers paid millions because if they were not all the people who have the skills do do that job would instead go off and become doctors or engineers or computer programmers and the like? I don’t think so. Rather, they can pay themselves a lot because they are in control of the money.
Now, suppose the internet were controlled by a clique of engineers and computer scientists who had arranged things so that every time you used it, you had to pay them a fee. The convenience of the internet means we would do so. Those computer scientists and engineers could dress it all up in some mumbo jumbo, saying that it need clever people like them to keep the internet going, so they have to be paid millions to get those people. They would of course ensure that the top levels of their profession went only to people who had come up from the lower ranks, and keep a rigid control on the whole thing to ensure there were only a few such people with the experience to do the jobs that paid the big money – even if the reality was that the actual skills in those jobs weren’t that much.
@Matthew Huntbach
“OK, but are the skills of bankers highly unusual skills that only a few people have? It seems to me that they are general administrative skills and calculating skills, not that different from those required in many other jobs which get paid far less.”
If this was true then banks would be firing their million pound bankers and hiring the much cheaper people. They don’t because the skills are not in fact interchangeable.
As a matter of interest ,why do you think it would be better for shareholder to have money money and employees less ?
@Matthew Huntbach
“OK, but are the skills of bankers highly unusual skills that only a few people have? It seems to me that they are general administrative skills and calculating skills, not that different from those required in many other jobs which get paid far less.”
If this was true then banks would be firing their million pound bankers and hiring the much cheaper people. They don’t because the skills are not in fact interchangeable.
As a matter of interest ,why do you think it would be better for shareholder to have more money and employees less ?
Of course Vince Cable, architect of the the student fees raise, never leaves the narrow interests of his own generation. Why should we be surprised that he is supporting a wage cap to help extremely rich bank owners predominantly of his generation, against rich bank workers, predominantly of my generation.
We need to put him on the spot: If a trader, managing a 100 million pound fund, beating his benchmark by 5 percent, i.e. creating 5 million pounds of extra wealth (predominantly for investors of Vince’s generation), generating 1 million in performance fees for his bank (owned predominantly by people of Vince’s generation), and as a result receiving a 250K bonus, is getting too big a bonus, then basically Vince is saying that the current 95 to 5 split in favour of his generation is not enough, so we need to put him on the spot so he can say what it should be – I suspect he would go with 100 to 0.
Anyone who doesn’t think they are worth the fees can put their pension in a SIPP, and do it themselves.
Also if politics is about providing what people need rather than freeing them, well people had everything they actually needed in about 1960, which raises the question of what actual goals Cable has in politics.
I don’t understand why people need a million quid a year. I’ve asked one or two of the more sympathetic bankers to explain it to me. The response has been: “It’s not that I need the money, it is because others get it so I should, too.” That is a ludicrous mindset. What on earth do these people think they are doing?
Go for it Vince because many of us out there do not know where these people are coming from.
@Richard S – there are mountains of evidence to show that fund managers generate returns that are no better (in fact on average worse) than trackers. A recent study found that 24% of actively managed funds beat trackers. And the manager who made all the “right” investments last year is not significantly more likely than anyone else to repeat that feat next year – consider Anthony Bolton whose reputation has plummeted after his missteps in China. And if the fund manager happens to make some percentage above his benchmark this year and gets a bonus then what is the penalty next year if he underperforms that benchmark? If I want exposure to equities then a fund run by a robot with no fast car or coke habit sounds like a good idea.
Actually, having read and re-read this post and the comments, I despair.
@JohnTilley
You may regard my comment as ageist, however I was merely reflecting on why Vince seems to be more frequently presenting subjects in terms that jar with the man I remember seeing in 2010 and before.
Having earlier this year had my attention drawn to early stage dementia, its symptoms and assessment, I was surprised by how subtle some of the indicators are and hence gained an understanding of why we often miss them. It is this experience and understanding that causes me to question whether Vince really is still operating at 100% of his cognitive abilities. Just because someone exhibits symptoms of early stage dementia, doesn’t mean that they are incapable of doing all the things Vince says he enjoys doing (including holding public office), only that we may need to make allowances and so adjust the way his skills are deployed, so that his weaknesses are not put on show.
Graham Martin-Royle 17th Mar ’14 – 3:19pm
Why should anyone get £1million
Why should anyone get £1million a year? Market forces. Supply and demand. That’s why footballers get paid so much, there is a large demand but only a small supply. The same applies to anyone in any job, they get paid what the market thinks they’re worth. What they think they’re worth, what others think they’re worth, don’t matter. If there were a larger supply of people capable of doing the job, the demand would go down and so would their salary.
As an ode to the orangebookers, would the lively lads and lasses at the fore of the Lib Dem policy unit seek to protest thus:
a) supply and demand
b) limited supply
c) insatiable demand
Please, would the Lib Dem policy unit seek to answer issues such as supply and demand because I do not have an honours degree in economic and many of the faithful do.
Graham Martin-Royle 17th Mar ’14 – 3:19pm
Why should anyone get £1million
Why should anyone get £1million a year? Market forces. Supply and demand. That’s why footballers get paid so much, there is a large demand but only a small supply. The same applies to anyone in any job, they get paid what the market thinks they’re worth. What they think they’re worth, what others think they’re worth, don’t matter. If there were a larger supply of people capable of doing the job, the demand would go down and so would their salary.
As an ode to the orangebookers, would the lively lads and lasses at the fore of the Lib Dem policy unit seek to protest thus:
a) supply and demand
b) limited supply
c) insatiable demand
Please, would the Lib Dem policy unit seek to answer issues such as supply and demand because I do not have an honours degree in economics and many of the faithful are not graduates in economics disciplines.
The best off have been using economic dogmas to justify injustices for centuries. That these dogmas were formulated in order to justify the right of a few to rule the many, and that the justifications were therefore tautological, does not give them pause; they serve the double purpose of assuaging the guilt of the few, and making the many blame themselves for their situation. And after every incremental reform, the few loudly claim the credit, even as they work silently to undermine the reforms and shed all trammels to their status as overlords.
@Paul
So put your pension in a SIPP, other investments in a tracker (or buy shares directly) and don’t use their services if you don’t think they are worth it. This is what I have done myself (I would consider myself to have above-average knowledge of these things). Don’t instead unleash the idea that there should be a maximum income, but only for professions who are unpopular with the public.
@Paul
You mention situations where a year of good performance is followed by a year of bad performance.
Yes bonuses should be structured differently, rather than the one-way bet, the salary should go down if performance is bad (in Slovakia, at J&T invest, salaries can go as low as minimum wage). The way this would be structured is that the base pay would be very low, but the bonus starts to kick in even from a very low performance point, so when performance is average the bonus is already big enough to make it up to the reasonable salary. (it’s easier to imagine if you graph it). The biggest obstacle to this operating in the UK is Vince Cable himself, with his firm belief that bonuses should not be paid in recessions, if performance is below average, if the bonus is a large multiple of basic salary etc. etc.
Also, if performance is rewarded not by bonuses, but as Vince wants, by pay rises, then this pay rise is locked in and needs to be given out yet again even if the performance is bad the next year. His inability to engage in the kind of thinking necessary to match actions to consequences in this area disqualifies him from the role and something should be said to him or Nick.
@Richard S – where do I suggest that there should be a maximum income? The point I am making is that the compensation scale is asymmetric. You did well? Have a bonus. You did badly? Have a smaller bonus. And (as with politicians) there is a tendency to claim personal responsibility for success (“I’m a stock-picking genius”) and blame external forces for failure (“the whole market is being pulled down by the liquidity crisis in the Chinese shadow banking sector”).
The banks pay extremely highly because (as Vince Cable rightly observes) that’s the going rate: it’s not the going rate because of any inherent skill or nous in the people being paid at those rates – it’s the going rate because it’s the going rate. I have often commented that I could throw a brick in Paternoster Square and hit ten random people any of whom would be as effective as the average trader on the floor of that funny building on the corner.
@Paul,
I assume you wrote your post before you had seen my second one. Do you now see why Vince Cable is part of the problem, not part of the solution?
About the maximum wage – Vince Cable is a politician, so what potential policy do you interpret his comments as being in favour of if not a salary cap or government sanctioned employers wage-fixing cartel? Why would whether bankers ‘need’ their high salaries be relevant but not whether other sportsmen and professionals ‘need’ their high salaries be relevant if he were not attempting to channel public hate against a scapegoat group. His behaviour is the very opposite of liberal.
Thank you for this post. It was a nice and touching read.
Just to add my tuppence to empathising with millionaires. I don’t get why that’s so important here. The most revealing thing was the decision to refuse to decimate adult learning because of the experience of his mother.
I appreciate you may think £1m or £105m is a lot of money and worth a lot. However, the difference a proper chance for an education however late in life makes not just to the individual but to the community is priceless.
Adult learning provision has not been in a good place for years now and I think the economy has paid the price with people mis-skilled and underemployed afterwards. The growth dividend would be worth worth £bns for a politician or political party with the gumption to sort it out
@Simon Shaw” I am worried that this is populist nonsense from Vince”
Simon clearly doesn’t get it. Simon needs to understand that relative reward is the key issue and if the reward for Bankers (aka gamblers with other people’s money with a no-fail contract) were, say 0.25M p.a the same relativity would apply provided a real incentive for success were added. Those of us who have experience of pension funds over 15 years have seen the those in the top quartile move to the bottom quartile and points in between. Paul of Twickers has it spot on.
The invidious effect of excessive Banker and other senior executive rewards relative to the workforce is our widening income differential. To see research evidence if its effect worldwide you need to read ” The Spirit Level”
@Roland
Might have been better if you had just stopped digging ?
If you (meaning various people above) don’t think they add value then presumably you, like me, have your pension in a SIPP, and just buy tracker funds. Why then do you have a problem with someone else choosing to invest their money in a managed fund? Why must every decision, whether it be smoking, or investing in managed funds run by self-declared gods, be collectivised?
@BianD
“Simon Shaw: ‘I am worried that this is populist nonsense from Vince.’
Simon clearly doesn’t get it.”
I think I do get it. I wonder if you misunderstand the point I was making. The precise part of Vince’s comment I was referring to was him saying that he didn’t understand why people NEED £1,000,000 a year.
The point I was making that making was that it is meaningless (i.e. populist nonsense) to take about what well paid people “need” to earn.
For example does a classroom teacher “need” to earn £37,000 a year?
Does a Police Inspector “need” to earn £50,000 a year?
Does an MP “need” to earn £65,000 a year?
Does a Cabinet Minister “need” to earn £135,000 a year?
All of these people earn a lot more than most people earn so I think you can perfectly well argue that none of them “needs” to earn what they actually do, just as clearly a banker on £1,000,000 a year doesn’t “need” that. £50,000 … £135,000 … £1,000,000 – that’s simply a matter of degree.
In contrast those on JSA or on most (working age at least) benefits clearly do “need” what they receive.
@JohnTilley
Agreed it was rather a tangential thought train. But thought that my original post was rather terse.
@Richard S – apologies in the lag in responding, I’m just back from work and my mobile has been flat all day so I’ve not had a chance to read your comment. Firstly, let me say that I think sportsmen are wildly overpaid but on the other hand the players in the premiership (well, most of them) are blessed with a rare talent that would justify considerable compensation for their services like a great musician or a brilliant scientist.
My point is that for many occupations (and working in banking or senior management are prime examples) the remuneration is seldom justifiable on the basis of talent or results. 20 years of working in finance has convinced my that talk about “talent” is self-serving guff. Why are salaries in the banking sector so high? Because the money is there to be creamed off and the people who set the salaries are thinking “if my staff aren’t worth this much then why am I?”. It’s exactly the same as with CEO compensation in FTSE companies – it has been skyrocketing, but the performance of the companies has not been equally stellar, has it? It has gone up because it has gone up.
I believe that this absolutely is a matter of concern for Liberals. If wealth and power are being concentrated in the hands of a minority/elite – and they most certainly are – then how can any Liberal can sit back and say “I’m comfortable with that. It’s market forces. It’s all good.”? It seems to me that Liberals should challenge those who seek to accumulate power and wealth. Peter Mandelson notoriously said that he was “intensely relaxed with people getting filthy rich”. I hope no Liberal would be so fawning.
“I don’t understand why people need a million quid a year. I’ve asked one or two of the more sympathetic bankers to explain it to me…. “
The simplest explanation here is surely that Vince meant exactly what he said – that he is puzzled about this. There is no reason to interpret this as playing to the gallery or whatever. But if Vince (or indeed anyone else) is puzzled then he should energetically search out the reason this is happening because it’s a symptom of something important and fundamental about how financial markets work nowadays. It’s like the canary in the coal mine except that this canary sings loudly when danger threatens.
The first thing to say is that some granularity is needed. Matthew Huntbach’s assumption that the skills needed are administrative and calculating may be true of commercial (high street) banking (which is indeed paid at ordinary rates) but it is emphatically NOT true of investment banking which is where the big bonuses are.
Bank directors pay themselves top dollar because they can, the same as other PLC directors. Because banks tend to be exceptionally large so the director’s remuneration is exceptionally large and, as with non-financial PLCs, has nothing whatsoever to do with ‘the market’. In fact it’s prima facie evidence of a market failure- which the economic liberals cheerfully ignore (or maybe their understanding of markets isn’t so good as they would have us believe).
The other group of bankers who get megabuck salaries are traders who are mostly youngish (often in their 20s). They run niche businesses within what are actually lumbering conglomerates. These trading businesses are often highly complex and not very liquid (both of which mean that margins are high) and the opportunity to circumvent laws and regulations is immense – for example if something is illegal in London then they just do it through a company in a tax haven where anything goes. It also means that opportunities abound to rip off customers (Goldman Sach’s staff were famously said to refer to customers as “muppets”) and the evidence that they do exactly that on an epic scale is overwhelming. Since the customers are likely to be pension funds, local government and the like this should matter to all of us.
Understanding that investment banks are actually conglomerates of many niche businesses explains why bonuses are not cut when the bank as a whole does badly – their bit did well. It also explains why pension fund performance (or whatever) is not a criterion; what counts is making money out of the pension fund – a very different objective. As someone is once supposed to have asked after a particularly ritzy presentation on the alleged virtues of some new financial ‘product’: “But where are the customers’ yachts?” Of course there were none.
It also explains why ‘rogue traders’ periodically emerge. The niche businesses have to be very nimble as many of the best opportunities are fleeting. That means that close supervision simply isn’t possible so screw ups are inevitable from time to time. Also the sums are so large that top management is incentivised to look the other way when traders sail too close to the (legal) wind – the Libor scandal and many others.
Much, probably most, of what the investment banks are doing is speculation – on interest rates, on oil prices, on food prices, on foreign exchange rates and so on. That can make immense fortunes for those who get it right and creates temptation to fix the odds before the game starts. Hence the observation that Wall Street and the City are much less regulated than Las Vegas. But, as Keynes observed, ” When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.” That more than anything is why the country is in a mess. Making money is NOT the same as wealth-creation.
@Simon Shaw
I think you are making a different point. I am suggesting (or arrogantly asserting even,) that we are talking about parity of esteem expressed as cash rather than the real need for all that spare filthy lucre. JK Galbraith had it that, once a certain level of wealth has been achieved, the only point in wealth is the ostentatious display of it!