Leading article: Time for ministers to call the banks' bluff

Related Topics

Another Christmas, another bonus season for Britain's bankers and another political headache for ministers. A scheduled meeting between the Government and bank chiefs on the subject was cancelled yesterday after the Chancellor, George Osborne, was stranded in New York by the bad weather. But the summit will take place later this week. The delay gives the Government an opportunity to stiffen its resolve to curb bonuses.

In 2006, Mr Osborne, then in opposition, notoriously implored Britain to "look and learn from across the Irish Sea". As Ireland's subsequent economic collapse has shown, that was very bad advice at the time. But it is much better advice now. Earlier this month Dublin vetoed one of Ireland's insolvent banks from paying out €40bn of bonuses. The Coalition should take a similarly robust stance on bankers' remuneration over here.

British banks are, like Ireland's, dependent on official support. The profits made by UK banks this year have been a consequence of the cheap money that continues to be pumped into the system by central banks around the world, not least the Bank of England. And the fact that these too-big-to-fail institutions have a de facto government guarantee has driven down the costs of their funding to artificially low levels, boosting profits.

Furthermore, despite some £1 trillion in official aid and support since 2008, UK banks are still not out of danger. They are facing potential losses of tens of billions of pounds as a result of idiotic lending to Irish, Portuguese, Spanish and Italian banks and companies. And the banks will face considerable refinancing pressures in the coming years as new regulations on capital buffers come into effect. This is why the Bank of England has urged that British banks use whatever profits they are enjoying now to bolster their equity reserves, rather than to pay them out in dividends to shareholders or fat bonuses to staff.

Yet the managements of these banks continue to seek to reward themselves and their favoured staff with extortionate bonuses. Like Wile E Coyote, they have continued running over the cliff edge, despite the absence of any visible means of support. Complaints from banks that their "talent" will leave the country if they are not paid a king's ransom each year is a bluff. These banks are making money because the markets have been tilted in their favour by governments, not because of the financial brilliance of their employees. Staff will stay put so long as the hidden subsidies from states remain.

The Deputy Prime Minister, Nick Clegg, said last week that the Government will "not stand idly by" if bonuses are too high. This needs to be more than just words. Ministers need to prevent the payouts being made, or at the very least ensure that awards are made entirely in shares (which will have the effect of increasing the capital reserves of banks), rather than cash. And those banks that still insist on resisting ministerial pressure must face a punitive tax.

Opponents of such a tax point out that the Government has an interest in maximising the value of the taxpayers' stake in Royal Bank of Scotland and Lloyds. Yet this argument is too narrow. Economic fairness has now moved to the centre stage of British politics. The recent popular demonstrations against tax avoidance by large UK companies and wealthy individuals reflect a shift in the popular mood. Behaviour by the super-rich that was tolerated in the boom years is no longer acceptable.

If ministers helplessly wave through another lavish bonus season for bankers, they will find themselves on the wrong side of public opinion and the wrong side of the national interest. As the fiscal retrenchment begins in earnest in 2011, that is the very last place the Coalition should want to find itself.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Guru Careers: Software Developer

£35 - 40k + Benefits: Guru Careers: We are seeking a Software Developer (JavaS...

SThree: Trainee Recruitment Consultant / Resourcer

£18000 - £23000 per annum + Commission: SThree: As a Trainee Recruitment Consu...

Ashdown Group: UI Developer - (UI, HTML, CSS, JavaScript, AngularJS)

£25000 - £40000 per annum: Ashdown Group: UI Developer - (UI, JavaScript, HTML...

Day In a Page

Read Next
Yvette Cooper campaigning in London at the launch of Labour’s women’s manifesto  

I want the Labour Party to lead a revolution in family support

Yvette Cooper
Liz Kendall  

Labour leadership contest: 'Moderniser' is just a vague and overused label

Steve Richards
Abuse - and the hell that came afterwards

Abuse - and the hell that follows

James Rhodes on the extraordinary legal battle to publish his memoir
Why we need a 'tranquility map' of England, according to campaigners

It's oh so quiet!

The case for a 'tranquility map' of England
'Timeless fashion': It may be a paradox, but the industry loves it

'Timeless fashion'

It may be a paradox, but the industry loves it
If the West needs a bridge to the 'moderates' inside Isis, maybe we could have done with Osama bin Laden staying alive after all

Could have done with Osama bin Laden staying alive?

Robert Fisk on the Fountainheads of World Evil in 2011 - and 2015
New exhibition celebrates the evolution of swimwear

Evolution of swimwear

From bathing dresses in the twenties to modern bikinis
Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine