Leading article: The official feebleness continues

Related Topics

Sometimes distasteful measures need to be taken for the wider good. The 2008 bailout of the banks was one such measure. It was necessary to rescue the banks in order to avert an economic catastrophe. Ministers were faced with a choice between propping up HBOS and the Royal Bank of Scotland and witnessing a breakdown of the payments system that makes economic life in Britain possible.

But nothing can justify what has happened in the banking sector since then. Bankers took this unprecedented public assistance (along with government guarantees that drove down the cost of their funding) and used it to pay huge bonuses to their employees. In the midst of the worst global downturn since the 1930s, which the banks had played a leading part in bringing about through their recklessness and incompetence, thousands of already wealthy investment bankers enjoyed record payouts.

The blame for this scandal lies with the previous Government. Around £1trillion in public support was channelled to the banking sector without any meaningful reform demanded in return. Few of the executives who led their firms to the brink of bankruptcy were forced to resign. There was no enforced structural overhaul to make our financial system safer. Ministers imposed a 50 per cent tax on bank bonus pots to discourage payouts. But the banks chose to pay the bonuses anyway.

And so far the new coalition Government has been no improvement. The Treasury minister, Mark Hoban, sprayed around hopelessly conflicting messages at the British Bankers Association conference this week. On the one hand, Mr Hoban demanded "restraint" from bankers on their remuneration and talked of a Financial Activities Tax on bank profits and remuneration. But on the other hand, he confirmed that no new taxation will be imposed without international co-ordination. And Mr Hoban is also "consulting" with the banks on how the meagre bank balance sheet levy announced in the emergency Budget will be imposed.

Meanwhile, the question of whether to split up retail and investment banking – the kind of reform essential to begin tackling the problem of banks that are "too-big-to-fail" – has been farmed out by the Government for consideration by a committee which will not report back until next year. No wonder the banks feel free to reassert themselves once more. No wonder the spurious old arguments that new regulation and curbs on pay will drive banking "talent" abroad are beginning to be heard again.

Mr Hoban said of the banks this week that "their fate is in their hands". But if the past two years have taught us anything it is that the banking sector is fundamentally incapable of reforming itself on pay or anything else. Change will have to be imposed from outside. So this is, at heart, a challenge for the Government. In the run-up to the general election the Conservatives and the Liberal Democrats aligned themselves squarely with public anger about the behaviour of the banks. Yet we have seen scant evidence so far of them living up to their promises to reform finance. All Mr Hoban has given us is a continuation of the feebleness of the previous Government.

The political risks of this supine attitude should be plain enough. The Government has chosen a prescription of severe (and economically risky) austerity for this country over the coming years. The social consequences of those choices will soon begin to bite. If bankers feel under siege now over their remuneration practices, they should wait until the mass public sector lay-offs begin. And if the Government expects that it will not be severely punished by the public if it fails to bring these institutions into line, it is making a blunder as profound as any made by the banks at the height of the credit boom.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Year 6 Teacher (interventions)

£120 - £140 per day: Randstad Education Leeds: We have an exciting opportunity...

PMLD Teacher

Competitive: Randstad Education Manchester: SEN Teacher urgently required for ...

Real Estate Solicitor 2+PQE - City

Highly Competitive Salary: Austen Lloyd: CITY - HIGH VALUE REAL ESTATE / RESID...

General Cover Teacher

£120 - £125 per day: Randstad Education Luton: Are you looking for part time/ ...

Day In a Page

Read Next
Theresa May  

It's not hard to imagine Prime Minister Theresa May standing on the steps of Downing Street

Jane Merrick

Karl Lagerfeld's latest Chanel show might have dressed itself up in feminism, but it was more embarrassing than empowering

Mark Izatt
Ebola outbreak: The children orphaned by the virus – then rejected by surviving relatives over fear of infection

The children orphaned by Ebola...

... then rejected by surviving relatives over fear of infection
Pride: Are censors pandering to homophobia?

Are censors pandering to homophobia?

US film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence
The magic of roundabouts

Lords of the rings

Just who are the Roundabout Appreciation Society?
Why do we like making lists?

Notes to self: Why do we like making lists?

Well it was good enough for Ancient Egyptians and Picasso...
Hong Kong protests: A good time to open a new restaurant?

A good time to open a new restaurant in Hong Kong?

As pro-democracy demonstrators hold firm, chef Rowley Leigh, who's in the city to open a new restaurant, says you couldn't hope to meet a nicer bunch
Paris Fashion Week: Karl Lagerfeld leads a feminist riot on 'Boulevard Chanel'

Paris Fashion Week

Lagerfeld leads a feminist riot on 'Boulevard Chanel'
Bruce Chatwin's Wales: One of the finest one-day walks in Britain

Simon Calder discovers Bruce Chatwin's Wales

One of the finest one-day walks you could hope for - in Britain
10 best children's nightwear

10 best children's nightwear

Make sure the kids stay cosy on cooler autumn nights in this selection of pjs, onesies and nighties
Manchester City vs Roma: Five things we learnt from City’s draw at the Etihad

Manchester City vs Roma

Five things we learnt from City’s Champions League draw at the Etihad
Martin Hardy: Mike Ashley must act now and end the Alan Pardew reign

Trouble on the Tyne

Ashley must act now and end Pardew's reign at Newcastle, says Martin Hardy
Isis is an hour from Baghdad, the Iraq army has little chance against it, and air strikes won't help

Isis an hour away from Baghdad -

and with no sign of Iraq army being able to make a successful counter-attack
Turner Prize 2014 is frustratingly timid

Turner Prize 2014 is frustratingly timid

The exhibition nods to rich and potentially brilliant ideas, but steps back
Last chance to see: Half the world’s animals have disappeared over the last 40 years

Last chance to see...

The Earth’s animal wildlife population has halved in 40 years
So here's why teenagers are always grumpy - and it's not what you think

Truth behind teens' grumpiness

Early school hours mess with their biological clocks
Why can no one stop hackers putting celebrities' private photos online?

Hacked photos: the third wave

Why can no one stop hackers putting celebrities' private photos online?