James Moore: Bank of England’s clawback idea is the sensible way to tame City

Outlook: With such a long tail on bonus money we may create senior bankers who look to the long-term health of their institutions

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Once again the Treasury is going to bat for the bankers in Brussels. Our Chancellor just can’t help himself. He’s proving that his priority is looking after his mates in the City.

With the European Court of Justice hearing oral argument from Government lawyers on why the EU’s controversial bonus cap should be declared illegal, these were the sort of comments doing the rounds yesterday.

Given the way the Treasury has coddled the City it’s easy to see why they represent such a seductive narrative. But Mr Osborne’s critics have it wrong, at least in this case.

Deprived of one means of getting money into the hands of their superstars, banks have reacted by creating another. So bonuses have given way to sharply higher salaries plus “economic allowances” – a monthly bung loosely related to economic performance (or economic forecasts).

Because these aren’t linked to an individual’s performance, or to banks’ corporate performance, they don’t count  as bonuses.

Au contraire, says, the EU’s financial services chief, Michel Barnier, who huffed and puffed in a letter to the European Banking Authority (EBA) over the weekend, complaining that they violated the “spirit” of the law establishing the bonus cap.

In other words, he doesn’t like them and so he’s stamping his little feet. It’s just not entirely clear what the EBA will be able to do given the way the law has been written.

There’s always the courts, of course. But here’s the problem: telling a judge you think something obeys the letter of the law but that you don’t much like it doesn’t make for a terribly compelling case.

More legislation then? And assuming it gets through, what next? Another round of salary hikes, probably, and more joy for  the bankers.

There have already been suggestions they think the allowances are a hoot. Of course they do. They basically represent a return to the bad old days of the guaranteed bonus.

But bankers might be even more pleased with further big increases to their basic. Basic pay is pensionable. Not that Mr Barnier will be around to watch such a malign scenario play out. He’s off to pastures new.

His intervention, in fact, smacks of his cementing his legacy by clearing the issue from his docket. And of making sure other authorities – including the EBA and the Bank of England – know who’s boss in future.

If he was genuinely concerned about regulation that worked he’d listen to the Bank, which would like to allow more flexibility when it comes to bonuses but wants them made subject to clawback for up to seven years.

The beauty of clawback is that it doesn’t only force bankers to take responsibility for their actions, hitting those who take rash decisions for years to come. With such a long tail on bonus money – and there are arguments for making it even longer – we may also, for the first time, create senior bankers who look beyond half-yearly earnings statements to the longer-term health of their institutions.

I’m no cheerleader for the Bank. Nor am I a knee-jerk Eurosceptic. But on this issue, at least, the Bank is steering a sensible course while Brussels has lost both its map, and the plot.

Rent-to-own profits make you wonder how they do it

When it comes to clout, the All Party Parliamentary Group on Debt and  Personal Finance is a long way from the Treasury Committee.

But it may have forced itself up the agenda with its launch of an inquiry into the rent-to-own market, especially now that the sector’s biggest player – BrightHouse – is considering a float.

Rent-to-own stores allow hard-up consumers to pay monthly for household goods. They include essentials; furniture, cookers, etc. But also electronic goods such as flat-screen TVs or hi-fi equipment.

On the face of it they’re a world away from the likes of wonga.com or CashLady, with their 5,000 per cent-plus APRs for short-term credit. But they have thrived under the same conditions. As the squeeze on real incomes has tightened at the same time as banks have battened down the hatches, they became the only game in town for large numbers of Britons.

BrightHouse’s growth has been quite spectacular, particularly since Leo McKee took over as chief executive. He’s doubled the number of stores.

The trouble is, with the flotation market still somewhat fatigued, to get the City really excited about an IPO, BrightHouse needs to tout some super-duper numbers and demonstrate that its growth can continue. Perhaps it can. And gross  margins of 16 per cent for a retailer will interest any investor.

But highlighting numbers like that begs a question: how are they doing it? The company might point out that compared to Wonga its APRs are positively spartan; a veritable snip at 90 per cent or so.

But it isn’t only the lending that brings home the bacon. List prices for goods can be very high, at least where it’s possible to compare them. It took me just five minutes to find a flat-screen Sony TV with a  five-year guarantee included at £1,599, some £600 cheaper than the equivalent with BrightHouse.

In many respects the rent-to-own sector represents the unfinished business of the payday-loans furore that ended with the planned introduction of tough new rules.

City investors might like to bear this in mind if they don’t want to find themselves in the position of too many rent-to-own customers for whom it’s a case of buy now, regret later.