The question surrounding bankers’ bonuses continues to
dominate political debates. Fred Goodwin, the disgraced
former Chief Executive of the Royal Bank of Scotland (RBS), joined an
unflattering list of people, including Zimbabwean tyrant Robert Mugabe, to have
their Knighthoods stripped. His successor, Stephen Hester, also succumb to
growing public and political pressure by waiving his annual bonus.
Goodwin, who oversaw the flawed takeover of the Dutch bank
ABN Amro, was made to resign after the UK government were forced to rescue RBS with
a bailout package worth in the region of £45 billion. In 2009, RBS went on to report
the biggest loss in UK corporate history totalling £24 billion. Goodwin,
meanwhile, left with a pension pot worth in the region of £703,000 a year.
Hester his replacement, by all accounts a good manager, has had to oversee
massive changes in the organisation and deal with plenty of criticism as he has
put to task. The UK government still owns 81 per cent of RBS shares.
Bankers are still not popular in the UK after the
financial crisis in 2008, and despite the curbs on pay and apologies from
bosses, financial regulation and policy is still an affliction on government policy,
particularly bonuses. As the public sector endures a pay freeze and high
inflation, it would be difficult for a government to be seen endorsing bonuses
to a bank which is owned by the public.
Last year, the Chief Executive of Barclays Bob Diamond, once
called the ‘unacceptable face of banking’ by the former Labour Business Secretary Peter Mandelson, told members of the House of Commons Treasury Committee that the
period of remorse and apology for banks needed to end. Diamond, who received a £6.5
million bonus in 2010, believed the language being used on British financial
institutions was unfair and could have an adverse impact on future regulation.
The Barclays chief, aware of the public mood, introduced a new ethics code for
misbehaving or ostentatious bankers.
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| Bob Diamond |
The government has been unable to counter the venomous attacks
from the media and its ability to generate campaigns. The Daily Mail’s front
page targeted ‘Sir Fred’ day after day and then subsequently Hester. The
Transport Secretary Justine Greening was forced to be seen to prevent Network
Rail chiefs from taking their annual bonuses too.
Perhaps this is where the Conservative party is getting into
trouble. It is too keen to submit in what is developing into a shotgun
democracy. It wants to protect the City but it doesn’t want to be seen as
protective of bankers. The Labour Party, who can still form no sensible policy
or opinion of their own, continues to flip flop on the spur of public opinion. They
are more content on trying to target left-leaning Liberal Democrats and
splitting the coalition. Their agenda is fast becoming one of envy and class,
yet the Tories retreat from any form of debate. Most people agree that it was correct to strip Goodwin of
his Knighthood, but the hysteria is spiralling out of control.
This is fast damaging London’s reputation. The RBS Chairman
Sir Philip Hampton said that bankers’ pay is something that needs reforming but
it would require an overview of how we want to the City to work. If the 50p higher rate of tax on highest earners remains in place until the next election,
London and the UK could potentially become an economically and politically ugly
place to do business. It is a question that government must answer sensibly and
putting business and jobs first. Otherwise, bonus season will become a never
ending carousel for government.
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