The Prime Minister has finally acknowledged what has been obvious for weeks: that failure to tackle excessive bonuses in British banking is a matter of profound public concern. When challenged for the umpteenth time to explain the situation yesterday, Gordon Brown said there would be no cash bonuses this year, and that next year bonuses would be paid only as a reward for hard work. He described this as “tough action”.
Maybe that is what it looks like from where he sits. From almost anywhere else it looks too little, and too late. While his American, French and German counterparts acted to restrict banking bonuses in January, Mr Brown needed another month to wake up to public concern. Yet, of all the complexities of the banking crisis, the bonus issue was probably the one best understood and most resented by lay people. How could it be that those individuals responsible for jeopardising our economic security were being so handsomely rewarded for their poor judgement?
Mr Brown, it should also be noted, was referring to 2009 and after, while what the public is exercised about is unfinished business from 2008. The Royal Bank of Scotland, for example, which was saved by £20bn of public money, will pay bonuses which include £175m in cash for top bankers and traders. Ministers maintain that these bonuses form an integral part of the RBS executive pay structure. They have looked into the legal position, apparently, and have concluded that contracts cannot be broken. The bank itself has claimed that a ban on bonuses would hit low-paid staff hardest. But the high-rollers cannot be allowed to hide behind their counter clerks: taxpayers are entitled to know how the figures really break down.
The latest defence of high bonuses is that without them, the brightest and best staff will leave just when they are most needed. Maybe. But when so many are being laid off at every level, are further incentives really needed? The notion that a bonus should make up the bulk of a banker’s salary was always misguided; it looks doubly so with the benefit of hindsight. Thanks to the controlling stake it now holds in many of our banks, the Government now has the whip hand; it should be far less hesitant about using it.