0ne of the principles espoused by this newspaper, when founded 19 years ago, was the admittedly unexceptionable one of fairness. Another was an advocacy of liberal market economics as the least bad way of advancing the wellbeing of the greatest number. But the second depends upon the first.
Support for liberal economics depends on a general belief that the risks and rewards of the system are fair. The Independent on Sunday has been sensitive, therefore, to a sense of unease building up in this country over the past decade – a period of historic accommodation between the Labour Party and the financial services sector.
Since the financial crisis broke in September, that unease has turned to a popular, righteous and largely justified fury. Many of the people who benefited from excessive pay were placing bets with other people's money that brought the global financial system to the brink of collapse. It may be simplistic, but it would not be inaccurate, to say that it was the greed of some very well-paid people that was a major factor in inducing the current recession.
It was in response to this anger that Barack Obama announced last week, his third week in the White House, that pay in any of the banks that are bailed out with taxpayers' money in the US will be capped at $500,000 a year – equivalent to about £350,000. Executives can be paid more, but only in share options that pay out once taxpayers have got their money back. Not only does this demonstrate that President Obama "gets it", but it shames Gordon Brown, who has had four months to deal with this issue.
For years, state regulation of financial markets was too lax. But since October, when US and UK governments took stakes in banks, political leaders have had a direct say in how those banks are run.
Mr Brown has been slow to use that power. When he announced that the Government was buying shareholdings worth £37bn in RBS and Lloyds-TSB, he said that the boards of directors had agreed to "take no cash bonuses this year". But the shares would be held at "arm's length", with Alistair Darling, the Chancellor, staying out of operational decisions. When it emerged in recent days that one of those operational decisions would be to pay bonuses to staff below board level, popular anger was stirred again.
George Osborne, the shadow Chancellor, said: "To increase taxes on people earning £20,000 to pay the bonuses of someone earning £2m is totally unacceptable."
No surprise, then, that Mr Darling should be taking to the BBC's sofa today to suggest that he will become a shareholder at a slightly shorter arm's length than before, but stopping short of an Obama-style cap on the pay of people who are in effect employed by the taxpayer. This is feeble. As Nassim Nicholas Taleb, author of The Black Swan, tells Margareta Pagano, our Business Editor, today, we have "a system which is the worst of capitalism and socialism, a situation in which profits were privatised and losses were socialised".
Of course, there are complications. Some of the people brought in to clear up the mess were not responsible for creating it. We are not against bankers as a group. We recognise that many of them work hard, are successful and bear no personal responsibility for the crisis. But, as a group, they need to see that it is in their collective interest to show voluntary restraint.
Many of the staff of nationalised or part-nationalised banks have existing contracts. That is presumably why the measures announced by President Obama apply only to banks that accept further taxpayer support in future. But we see no reason why the Government here should not simply declare that its bailouts negate all bonus clauses.
The new President may be less shinily principled than he seems, but at least his moral message is loud and clear. Mr Brown and Mr Darling, on the other hand, manage only exhortation in policy and confusion in message. Not least because Government ministers, Lord Mandelson prime among them, seem to be telling the low-paid workers for energy companies that they simply have to compete more strenuously in a European labour market.
All these points, however, are complicating something very simple. If taxpayers put up the money to rescue the banks, they, through the Government, are entitled to lay down conditions of fairness by which that money should be used.
Today, we set out a manifesto for fairness that should guide the Government's policy towards the banks. It is a shame that a Labour government has taken four months, under prompting from a Conservative and an American, to stumble so apologetically towards doing the right thing. And to fall so far short.Reuse content