Why exempt nationalised banks from public sector pay cap?

Posted on Friday 6 February, 2009
Filed Under Economics

 

CALLING on bankers not to pocket giddying emoluments on the slightest pretext is much like counselling complete sexual continence and strict observance of government drink unit guidelines to a bunch of teenagers about to jet off on a Club 18-30 package tour. You just know you won’t be listened to.

However, such was the quality of the advice on offer to the financial sector from Lord Mandelson this week, when he warned now-humbled masters of the universe to be heedful of public perception when calculating their bonuses:

They have also got to consider how it looks and how it seems when those mistakes and losses have been made.

My feeling is that it will take more than routine admonition to curb investment banker cupidity. Lloyds Banking Group – recipient of £17bn of government largesse – reportedly feels free to go ahead with bonus payments worth hundreds of millions of pounds in the weeks ahead.

RBS staff can expect more modest, but still considerable, top ups to the tune of tens of millions. This from a bank that needed a £20bn government bail-out only last October.

The public relations consequences of fat cattery underwritten by the taxpayer will rightly be colossal. It is clearly in Labour’s self-interest at this juncture forcibly to extract fingers from the till, but somehow the government lacks the requisite political courage to act decisively. The Financial Times reveals:

Alistair Darling, chancellor, is reluctant to impose further prescriptive restrictions on bank pay … Mr Darling fears an across-the-board government intervention in banks’ remuneration policy could be complex and demoralise key staff.

This is the same Alistair Darling charged with policing the current 2% public sector pay cap. Strangely, he seems to have no qualms about across-the-board government intervention in remuneration policy demoralising nurses or teachers.

Comparisons with governments in other countries are instructive. US president Barack Obama has imposed a pay ceiling of $500,000 (£345,000) on executives of banks and other companies in receipt of taxpayer support. Over the Channel, Sarko is considering bonus restrictions on the trading floor. Eat your heart out, Jérôme Kerviel.

As a consequence of its cowardice, New Labour now risks being outflanked by Tory populism. George Osborne makes the simple point that increasing taxes on somebody earning £20,000 a year so that somebody on £2m a year can be enriched yet further is unacceptable; all but the most purblind apologists for financial capitalism will accept the shadow chancellor’s logic.

Even as an ex-Trot, I would not go so far as the FT, which recently published an opinion piece by one of its star columnists under the headline ‘shoot the bankers, nationalise the banks’. But that’s only because of my principled opposition to the death penalty.

Cuddly and reasonable Labour Party member that I am these days, I would say this to Brown and Darling; now the bastards are part of the public sector, should not senior bankers at least be subject to the same policy as the rest of the public sector? Anything else smacks of double standards, and the electorate knows it.

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