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.