When the Conservatives and Liberal Democrats set out their coalition agreement, tackling bankers’ bonuses got an explicit mention:
We will bring forward detailed proposals for robust action to tackle unacceptable bonuses in the financial services sector; in developing these proposals, we will ensure they are effective in reducing risk.
Three years and a lot of hand-wringing later, they have little to show for these bold words. Labour in government took action, introducing a tax on bonuses in addition to a new 50p tax rate on earnings over £150,000. The tax on bonuses has been dropped and the top-rate reduced. The problem apparently is that banking is an international market so we can’t be too firm with the bankers or they’ll all relocate to Frankfurt.
Except that we’re members of the European Union and therefore with a bit of will-power, something can be done. Faced with a fairly straightforward proposal to limit bonuses to a maximum of a year’s salary or double that if explicitly backed by shareholders, the Chancellor is squealing in horror – despite the proposal having been backed by Tory MEPs at an earlier stage. Of course that may have been before the Tories’ financial backers gave their views…
This proposal doesn’t undermine the competitiveness of the City of London: it doesn’t even curb excessive pay. It just changes the balance in remuneration to move away from excessive risk taking.
Let’s be clear: the reason pay in the financial services sector is so much higher than other sectors is not because bankers are better than the rest of us. Thomas Jefferson once said that “banking establishments are more dangerous than standing armies” but it is not because banking is more dangerous or more complex than other professions.
Ten years ago, I spent an afternoon with senior managers at UBS. It was while I was working for Hackney Council and the session had been organised to help us exchange ideas and working practices. It was a useful session and I was left with a positive impression of them. But I think they learned more than we did. What we were trying to achieve was so much more complex that what they were doing. Risk management for them was one dimensional: will I make or lose money? Yes they needed to think about long term versus short term and we now know that not enough attention was paid to system-wide risks. But it is a world apart from the dilemmas which were facing Hackney Council officers every day. UBS put a lot of effort into corporate social responsibility programmes and encouraging their staff to undertake voluntary work in the community and that’s got to be a good thing. But “putting something back into the community” was much less of a concern for us, because that’s what our workforce were doing every day.
The reason top bankers are paid so much more than other professionals is because senior bankers determine their own pay.
In a free society, there will always be significant differentials in wealth and income. There are wildly different views on how much variation is fair – but what is beyond doubt is that the gap has widened massively. As the High Pay Centre set out here, the share of national income going to the top 1 per cent of the income distribution has more than doubled since 1979 to 14.5 per cent from 6 per cent.
As a society, we need to consider whether this is right. Certainly it is impossible to justify the forthcoming £2.7 billion tax break that the Government is giving this income group next month. Even if you didn’t give two hoots for fairness, it wouldn’t make economic sense. If you want to get the economy moving, a tax break for the low paid would be much more effective, because they are much more likely to spend the money in the local economy.
The banking crisis exposed the fact that the financial services sector relies on government backing to enable it to make its vast profits – so society in turn has a right to impose some tough rules on the sector.
There is a recurring theme in the attitude of Government Ministers, which is to blame foreigners. It plays well with the Tory faithful and the fact that George Osborne’s approach to economics has decisively failed, means they’re getting quite jittery. It is almost as though the reason the Tories are against is because this is an EU proposal! The European Convention on Human Rights is a frequent target, despite the fact that it was drafted by British lawyers. Earlier this week, Britain’s most senior judge warned that on the particular issue which is exercising Theresa May and Chris Grayling, withdrawing from the Court wouldn’t be enough – we would need to leave the United Nations as well.
When the IMF told the Government its economic strategy was making things worse, I wondered whether David Cameron was going to propose a referendum on leaving the world. I didn’t realise they were already thinking in that direction. David Cameron using foreign leaders as a punchbag to impress his backbenchers always risked leaving him isolated. Small wonder George Osborne finds himself without any friends at the conference table so soon afterwards.
Doesn’t it make you angry that the banks have been allowed to ride roughshod over our economy, and are still handing out bonuses by the bucket load? Don’t settle for low politics and broken promises: be more demanding.
That’s what the Liberal Democrat manifesto said in 2010. In politics as well as life, it is important to be honest about what you will do and then to deliver what you promised. Apologising for staying a load of stuff that you thought sounded good in the campaign but didn’t really intend to implement in government just won’t wash. That’s why less than half of those who voted Lib Dem at the last election intend to do so at the next.