The Battle Of The Bonuses

I appreciate the bewilderment of the general public at the rapid return to huge bonuses in those parts of the City (including the 70% state-owned RBS) which seemed so close to collapse only a year ago.

However, amidst the anger and dismay we need to realise that this in a highly mobile, global business. The only way to introduce an effective cap on banking bonuses would be by a binding, international agreement to cover London, New York, Hong Kong, Singapore, Tokyo et al. This is NOT going to happen.

Conservatives rightly support calls for restraint throughout the financial sector and in order to open up lines of credit to small businesses it was our suggestion last month that this year’s bonuses should ideally be paid in shares, which would only vest in future years.

The government is all at sea on this issue. It should now stop grandstanding with its “for the many, not the few” line and lead public opinion with a frank explanation of a practical way forward on bonuses.

The real question for the future is this: how can the UK taxpayer get best value for its colossal investments in both RBS and the Lloyds Banking Group?

For sure we can impose stringent rules on bonuses being awarded by those banks which are majority state-owned. But the truth is that the brightest and best will simply leave and join other banks where they will not be subject to a restriction on their bonus and earning capacity.

If we are to repay these nationalised banks’ debts and sell off the stakes we own as rapidly and for as much value as possible, how can it be in the national interest to constrain these banks from maximising their financial performance?