David Boyle is a nef fellow, a writer and the editor of nef‘s newspaper, Radical Economics.
Vince Cable was quite right on the Today programme. The response to the RBS director’s threat to resign if they are not allowed to pay the bonuses they want to their failed, cash-strapped, state-owned bank should be to say: go ahead.
But we need to look a little more closely at the business of banking bonuses. They are paid out of a percentage of the profits of the investment divisions, sometimes up to fifty per cent. The money would otherwise go to the shareholders – the same ones who failed to exercise proper control over the bank they owned.
There are some, and Fortune magazine is among them, who would say that they are better shared with the staff than shovelled at the owners – and that’s right as far as it goes.
But the real question is not why the bonuses are so high. It is why the profits are so high. They come, after all, out of all of our pension investments, or the debt that goes to build productive business, or capital investments in public infrastructure. The real scandal is that these bonuses are paid out of fees which ought rightly to stay with the small investors who are watching the value of their pensions falling.
The fact that the banks are able to award themselves such hefty fees is purely because we have allowed a semi-monopoly to build up in banking, both domestic and investment banking. So here is the real solution: slash the bonuses, accept the resignation of the directors, put in their place bankers who are prepared to do what is necessary to break up RBS into its constituent businesses and regions.
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10 December, 2009 at 5:59 pm
Alban Thurston
Well said, Vince Cable. And well echoed, David.
A week on, Darling’s much trailed gesture of a windfall tax on bankers’ bonuses is now confirmed in the PreBudget Statement. No resignations, of course, from RBS’s non-execs at time of writing. Even discounting their hypocrisy, the RBS chaps haven’t needed to live up to their bleat. , since Darling’s simplistic slap will be so easily avoided. Ducking tougher choices about structural banking reform, the Chancellor’s measure was essentially empty grandstanding for political advantage. At least Sarkozy and Merkel appear to be joining in, waving with Alistair.
In a largely ‘pro-banker’ blog this morning, Robert Peston speculates on why the Treasury anticipates the UK’s clampdown on bonuses will raise no more than £ half a billion :
“…..there is a further possible explanation – which is that a truly astonishing number of those earning the big bucks in the City are not resident here for tax purposes. Certainly many international banks have a policy of rotating their top staff …..so that they are never in one place long enough to become liable for local taxes”.
Nailing bankers to one fiscal location would help. And of course, without an improved “Son of Glass Steagall”, renewing the split between the banks’ casinos and their less exciting utility functions, we’ll be trudging over this ground again very soon.
10 December, 2009 at 6:19 pm
Alban Thurston
Additional point:
It seems likely, as noted above, that RBS chair Colin Buchan, chief exec Stephen Hester, Sir Sandy Crombie and the other RBS directors have conveniently decided to value their warm seats & high income in the RBS boardroom, over last week’s ‘principled’ oppositon to HMG slapping a tax on bankers’ bonuses. If this continues to be the directors’ stance, which of us will be contacting RBS corporate HQ, asking why Colin and his chums haven’t yet been as good as their words of last week? Doubtless any of the following nice RBS media professionals will be happy to take your call on this important matter of “principled corporate governance” – http://www.rbs.com/global/contact-us/media-contacts.ashx