On the day the Royal Bank of Scotland announced the largest annual loss in UK corporate history, paving the way for another huge cash injection by the government (bringing the taxpayers’ investment in RBS to £45.5 billion since October), the story eclipsing all others is the size of the pension pot of RBS’s Chief Executive, Sir Fred Goodwin. Let’s face facts – this is a smokescreen to divert attention from the appallingly bad deal that government intervention in RBS represents to each and every one of us.
It is a sign of the times that the idea of a £24.1 billion annual loss fails to raise many eyebrows. Yet at a time when billion pound losses are being posted almost routinely, it is understandable that public anger rests on something easier to comprehend. On learning of the potential £16 million pension pot, we can all make a direct connection between the money we pay in tax and its destination – Sir Fred’s bank account – and ponder the disparity between success and reward, the treatment of top bankers and ordinary workers, our own financial circumstances to the rewards for failure in the boardroom.
This is why this story is so dangerous to capitalism.
I have some sympathy with Sir Fred’s argument that he should keep his money if it is established that the government agreed to leave his pension arrangements intact in return for his sacrificing severance pay and options. I even have a sliver of admiration for his refusal to give in to a government whose self-righteous, politically calculating public face contrasts with its private desire to cut a deal without properly appraising itself of the implications. Indeed if there is one area of consistency from government over the past months, it has been in the blaming of bankers for all of our emerging economic woes.
But let us not forget that Sir Fred’s stewardship of RBS has been a monumental failure – catastrophically the worst failure in this country’s corporate history. Had the government not intervened to save this failed institution, Sir Fred would have had to rely on some sort of pension protection fund which no doubt would have capped his pension at around £20 000 per year.
I support capitalism. I believe in honouring contracts and recognise the importance of these concepts in our global economic relations. Incentives should rightly be offered for good performance. But the end result of this particular episode can only be utter distaste for politicians, bankers and – most damaging of all – capitalism. Far from upholding the free market values and the honour of the law of contract, those who support Sir Fred’s entitlement as it was back in October will only help to undermine capitalism and all it does to create wealth.
For the truth is that we now know that the profits, bonuses and other emoluments for many banks and bankers over recent years have been massively overstated. If it is impractical to restate those earnings to reflect reality that has become apparent since last autumn, it is equally absurd to invoke the sanctity of contract law to prevent some move towards an equitable claw back for those unwarranted rewards.