No rewards for failure, insists Brown

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Indy Politics

Prime Minister Gordon Brown insisted today that there must be "no rewards for failure" in Britain's banks.













His comments came as the Treasury launched a long-term review of City remuneration policies, amid public anger at reports that banks are planning to pay hundreds of millions in bonuses to senior staff despite their massive losses over the last year.



Speaking to an audience of economists in London, Mr Brown promised that he would "sweep aside" the short-term bonus culture in banks and ensure that rewards are provided only for long-term sustainable success, with "penalties" for those who take irresponsible risks.



The policy of "no rewards for failure" would be pursued "aggressively", said the Prime Minister, adding that banks in which the state now holds a majority stake would pay no bonuses to board members and no dividends to shareholders this year.



Mr Brown said: "I believe, as a society, we should support hard work, effort, enterprise and responsible risk-taking.



"We should not in any way condone, but should punish, irresponsible and excessive risk-taking."



He said the Government's actions were intended to show that "the old short-term bonus culture is gone; that there are no rewards for failure, but penalties for failure; that in the future there must be rewards for success - but long-term sustainable success and not just short-term gains.



"In the present and future, the no rewards for failure policy will be pursued aggressively."











Leading City figure Sir David Walker has been asked by Chancellor Alistair Darling to examine what went wrong in the management of banks to spark the credit boom-fuelled recession.

His review will investigate "failures of corporate governance by bank boards in several areas", including encouraging risk-taking with bonuses, the skill and experience of directors and failures of monitoring.



But the inquiry was branded an "establishment cover-up" by critics, who claimed the Treasury was kicking the issue into the long grass rather than taking immediate action to prevent the multibillion-pound bonuses expected to be paid out over the coming weeks.



Although Sir David's findings will "inform" this year's Budget, he is not due to make his final recommendations until the end of the year.



Shadow chancellor George Osborne said it was a "totally inadequate" response.



"The problem of bonuses in the Government-owned banks has been looming for months, but now they have set up another review that will be far too late to do anything about this year's bonuses," he said.



"They should stop dithering and act."



And Liberal Democrat Treasury spokesman Vince Cable called it "a classic British establishment cover-up".



"Instead of dealing decisively with the problem, as (US) President (Barack) Obama, the Swiss and others have done, the Government is clearly playing for time in order to avoid doing anything to upset the bankers.



"The public will be even more infuriated than before."



Chief Secretary to the Treasury Yvette Cooper said today that executives at banks dependent on taxpayer support have a "moral responsibility" to consider forgoing any bonuses this year.



Bonuses had been ruled out already for the boards of banks in receipt of Treasury support.



But she said that, among the rest of the banks' staff, there were some "legal obligations that they can't get out of" to pay bonuses.



Ms Cooper added: "For those senior executives, even where they have legal obligations, I think there is a moral responsibility on some of these bankers, even if they are legally entitled to take bonuses, at a time when the bank is only still standing because of Government intervention and where I think there is an important issue about needing to restore trust in the City, senior executives need themselves to take responsibility and consider whether they should be taking bonuses."



That review would consider why banks entered into binding obligations to pay bonuses at all, Ms Cooper added.



Speaking on the BBC Radio 4 Today programme, she went on: "The Chancellor has also made very clear, even where there may be legal obligations, bonuses should be minimised this year for banks that have taken capital from the Government and are only still standing as a result of the Government's action, because you simply cannot have bonuses for failure.



"It is simply unfair on everybody else."



Announcing the Walker Review yesterday, Mr Darling indicated that some staff at a bank bailed out by the taxpayer were likely to receive some bonuses, amid mounting pressure for all payments to be halted.



He insisted that "absolutely no figure" had been agreed with Royal Bank of Scotland after it was reported to be proposing a package totalling £1 billion, despite being propped up with a £20 billion state cash injection.



But he accepted that "contractual problems" and the right of staff other than those involved in "excessive risk-taking" to be rewarded would rule out a total ban.



RBS, now 68%-owned by the Government, is due to report its 2008 results in three weeks, when it will confirm a loss of several billion pounds.



UK Financial Investments (UKFI), the firm set up by Mr Darling to oversee state investments in the banks, must approve any bonus package at RBS or other state-supported banks.



UKFI was itself at the centre of controversy today after it emerged that its own staff, mainly senior financiers and Treasury officials, were set for bonuses if they performed well in managing the taxpayers' assets.











Conservative leader David Cameron accused the Government of being "asleep on the job" over City bonuses.



It was "outrageous" that banks which were effectively owned by the taxpayer were considering paying out bonuses from state money which they received to bail them out, he said.



Mr Cameron said small business people were "furious" at the behaviour of the financial services industry.



In banks which are effectively state-owned, the Government should apply the principle "he who does the paying does the saying" and ensure that good sense prevails over the payment of bonuses, he said.



Mr Cameron said he and shadow chancellor George Osborne had been warning since last autumn's party conference about the looming problem of banking bonuses.



"We raised the problems of excessive bonuses and bonuses in banks the taxpayer has put a lot of money into," he said.



"The Government seems to have done absolutely nothing about it and yet the bonus season and the results season is now upon us.



"It is not so much that they shut the door after the horse had bolted - they shut the door after the horse had won the 3.20 at Uttoxeter. They seem to have been completely asleep on the job.



"This review is much too late in coming, but I hope that it will be a review that all parties can contribute to, because clearly if it is going to take a year it may be the next government that will have to implement many of its recommendations."



He added: "It is outrageous for the taxpayer to put £20 billion into a bank only to see a billion on so of that being used to pay out bonuses.



"The Government owns this bank, it is able to make sure that good sense prevails and I would press them to do that."







Mr Cameron said the banks needed to realise the public anger at the prospect of bankers taking taxpayers' money to pay themselves bonuses.

"I think that the bankers have to to have a bit of a 'wake-up-and-smell- the-coffee moment' and recognise 'Actually, hold on, we wouldn't be here, we wouldn't have jobs, we wouldn't get anything were it not for the taxpayer standing behind us'," he said.



"Frankly, it is insulting, it is shameful, to then take the taxpayers' money that has gone into the banks and use it for bonuses."



However, he refused to rule out taking donations to the Tory Party from bankers who accepted bonuses.



"I think, frankly, it would be a much better use of money to give to the Conservative Party to win the election and to help to sort out the regulatory mess that the Government has created rather than buy a new Ferrari," he said.









Gordon Brown's spokesman said today: "The Prime Minister's view is that, for those people in potential receipt of substantial payments to which they are legally entitled, they may want to ask themselves some quite searching questions about whether or not they should in fact receive them."

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