Ministers divided on bankers’ bonuses as action fails to live up to tough talk
Chancellor George Osborne and Vince Cable are divided on the issue of bankers bonuses ahead of their meeting with bank bosses today to discuss the issue, with the Business Secretary promising to crack down on excessive remuneration while the Chancellor was in New York promoting the attractiveness of the UK as a base for financial services firms.
On Friday, in a Financial Times interview Deputy Prime Minister Nick Clegg said the government would not “stand idly by” and that banks would not get away “scot-free” unless bonuses were reined in. Business Secretary Vince Cable has also adopted an aggressive tone towards the banks, promising “robust action”.
However, Ministers have had more than seven months to act on bonuses and this tough talk has not been matched by the government’s actions.
The Bank Levy announced in the June Budget fell short of expectations, giving banks a £20 billion tax-free allowance regardless of their size and not applying to many investments banks for which more than 50% per cent of operations are defined as ‘non-financial’. Additionally, the IMF has said the levy could raise more than the £2.5 billion a year which the government has announced.
Despite promising in the June Budget to implement new rules on the disclosure of bankers’ remuneration in pay bands above £1 million, ministers have U-turned and failed to bring forward proposals. Because a consultation on the scheme would take a minimum of three months, it will not be possible to introduce new disclosure rules before the end of this year’s bonus season.
This is despite the fact that RBS CEO Stephen Hester has indicated that introducing a disclosure scheme unilaterally would not disadvantage the UK compared with its competitors.
In contrast, a year ago the then Chancellor Alistair Darling introduced a 50% levy on bankers’ bonuses and imposed strict rules on state-owned banks RBS and Lloyds Banking Group specifying that staff earning more than £39,000 would not be paid cash bonuses while any payments to board members would have to be deferred.
On Friday, the FSA published its new remuneration code which determines how guidelines issues by the Committee of European Bank Supervisors earlier this month will be implemented in the UK. However, concerns have been raised that many hedge funds and investment firms will escape the toughest of the new rules.
Commenting, Treasury Select Committee member Chuka Umunna MP said:
“Despite all the tough talk from Lib Dem ministers, the government has consistently failed to take action on excessive bonuses in the City.
“The Chancellor and Business Secretary are clearly at loggerheads on this issue and the Chancellor has shied away from talk of applying a bonus tax this year to match Alistair Darling’s action last year.”
“Vince Cable’s words are nothing more than hot air designed to buoy his party’s remaining activists after the tuition fees debacle.”
