Banking bailout was unfair, Mervyn King tells TUC

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Indy Politics

The Bank of England governor Mervyn King today described the huge banking bailout as "unfair" and appeared to sympathise with calls for multibillion-pound tax evasion to be tackled when he spoke to union activists.

Mr King told the TUC Congress in Manchester that he understood the strength of feeling over the size of bankers' bonuses and said "radical reform" of the UK's financial system was needed.

The 62-year-old faced minor protests from some banner-waving delegates and a walkout by the Rail Maritime and Transport union delegation, who retreated to their exhibition stand to watch children's TV.

He was also told bluntly that bankers were "greedy bullshitters" and that he had failed in his job.

As he waited to speak, delegates called for a high pay commission to investigate the "out of control" wages of executives and other high earners.

The Communication Workers Union said a commission should examine the difference between the highest and lowest pay in leading companies.

General secretary Billy Hayes said: "The blatant double standards in pay for those at the top of companies compared to those at bottom is outrageous and leads to dissatisfaction and a divided society of haves and have-nots."

During his 20-minute speech, only the second by a Bank of England governor to the TUC Congress, Mr King warned that the Government risked plunging the UK back into crisis if it did not reduce Britain's record deficit.

Amid union fury over next month's planned public sector spending cuts, the central bank boss said "vague promises would not have been enough".

Mr King said he believed it was vital the Government set out a clear plan for reducing the deficit and warned that the UK could otherwise have suffered the kind of woes seen in Greece.

"As a result of a failure to put such a plan in place sooner, some euro-area countries have found - to their cost - a much more rapid adjustment being forced upon them," he said.

But he told delegates they were "entitled to be angry" as he admitted the financial sector and policymakers were to blame for the financial crisis that had landed the UK with the largest peacetime budget deficit in its history.

Regulation of banks needed to improve and poorly performing banks should be allowed to fail, without risk to depositors or taxpayers, he said.

"In 2008, banks were bailed out not to protect them but to protect the rest of the economy from the banks. That may not seem fair - and it isn't - when other companies, such as Jaguar, had to stand on their own feet or go to the wall. So banks too must face market discipline."

Mr King said there was a "perfectly reasonable debate" about the speed at which to reduce the UK's financial deficit and said the onus was on critics to come up with a better way.

Mr King said in a question and answer session that he had "enormous sympathies" with public anger over bank bonuses, adding: "I understand the strength of feeling.

"In fact I am surprised it has not been expressed more deeply."

He agreed it was hard to understand how the City could start paying big windfalls again just two years after the taxpayer bailed out the sector.

But he said the country needed to address the root cause of why banks felt they were able to pay such large bonuses to take risks rather than ban payouts.

He faced tough questions from the audience over the City's behaviour and the spending cuts as well as the Bank's failure to spot the financial crisis.

Janice Godrich, president of the Public and Commercial Services union asked Mr King if he agreed that more should be done to close tax loopholes and tackle the £120 billion of uncollected tax revenues as well as go after the "criminals" engaged in massive tax evasion.

Mr King said the Bank of England was not involved in tax collection, but he added: "I hear your points and they seem persuasive."

The governor told the TUC that banks' finances were not in good shape, adding: "It will take time to nurse the banking system back into health. There is not a simple short-term solution."

Mr King received a few seconds of polite applause from the delegates.

In a following debate, GMB President Mary Turner said: "Mervyn, if you want to know what went wrong I can tell you - the bankers are greedy bullshitters."

TUC general secretary Brendan Barber said later: "Congress clearly welcomed the Governor's strong condemnation of the culture of bonus excess and his clear recognition that the crisis was caused by banking boardrooms.

"We have to disagree over the timetable for reducing the deficit but delegates were impressed with his willingness to engage."

Paul Kenny, GMB general secretary, said: "His analysis of the excesses of the banking system reminds me of Jessie James warning people in the Wild West about the dangers of train robberies. The truth is that he presided over the Bank of England and he never spoke out when he should have done.

"His statement that the banking crisis and the recession that has followed was not foreseeable is plain wrong. Many voices including that of the GMB spoke out. He should have done the same. The fact is that he failed us."

Bob Crow, general secretary of the Rail Maritime and Transport union, who boycotted the speech, said: "RMT delegates want to hear from the people suffering from this economic crisis, not waste time being lectured by the people who created it."

A Unite spokesman said: "The governor acknowledges that the banks are not yet under control. This is a message he needs to take to George Osborne, not the TUC.

"Mervyn King says he is willing to listen to alternatives. Using the state-owned banks to pump money into struggling business would be a great start. That would help save jobs and ease pressure on the Government's welfare bill."