George Osborne: bonuses will make the credit crunch worse

The Chancellor’s tough words in opposition are all but forgotten as the government backs away from c

David Cameron has pulled back from curbs on bankers' bonuses or a tax on the banks, according to reports this morning (£).

The Centre for Economics and Business Research predicts that bankers will receive £7bn for 2010, down from £7.3bn for 2009 – a difference that will appear negligible to most of the public, and insulting as the rest of the population faces pay freezes, wage cuts and redundancies.

This backtracking from any serious confrontation over the banks is being portrayed as a blow to Vince Cable and Nick Clegg, both of whom have been vocal advocates of a clampdown on bonuses.

Yet it was not just the Liberal Democrats who were noisy critics of bonus culture while in opposition. Here is George Osborne, speaking in October 2009:

I am today calling on the Treasury and the FSA [Financial Services Authority] to combine forces and stop retail banks – in other words the banks that lend directly to businesses and families – paying out profits in significant cash bonuses. Full stop.

Strangely enough, now that he is in power, the Chancellor seems somewhat less concerned about taking this urgent action.

He and Cable are said to be working on a face-saving deal to be announced in the next month. It will focus on greater transparency, and on increasing lending to first-time buyers and small businesses. The strategic shift in emphasis away from clamping down on bonuses and towards more lending is misleading.

In fact, Osborne also had some thoughts on this, in the same 2009 speech:

It was a year ago that I first warned that the money taxpayers provided to support bank lending must not be diverted into bonuses. A year later, the banks are making billions in subsidised profits.

But instead of using these profits to lend more and get credit flowing again, the banks are threatening to pay out billions in cash bonuses instead. If this happens it will make the credit crunch worse.

We need to take emergency steps to support bank lending and move the economy forward this winter. The banks have to understand that we are all in this together.

Yes. Quite.

Samira Shackle is a freelance journalist, who tweets @samirashackle. She was formerly a staff writer for the New Statesman.

Getty Images.
Show Hide image

Why Theresa May won't exclude students from the net migration target

The Prime Minister believes the public would view the move as "a fix". 

In a letter to David Cameron shortly after the last general election, Philip Hammond demanded that students be excluded from the net migration target. The then foreign secretary, who was backed by George Osborne and Sajid Javid, wrote: "From a foreign policy point of view, Britain's role as a world class destination for international students is a highly significant element of our soft power offer. It's an issue that's consistently raised with me by our foreign counterparts." Universities and businesses have long argued that it is economically harmful to limit student numbers. But David Cameron, supported by Theresa May, refused to relent. 

Appearing before the Treasury select committee yesterday, Hammond reignited the issue. "As we approach the challenge of getting net migration figures down, it is in my view essential that we look at how we do this in a way that protects the vital interests of our economy," he said. He added that "It's not whether politicians think one thing or another, it's what the public believe and I think it would be useful to explore that quesrtion." A YouGov poll published earlier this year found that 57 per cent of the public support excluding students from the "tens of thousands" target.

Amber Rudd, the Home Secretary, has also pressured May to do so. But the Prime Minister not only rejected the proposal - she demanded a stricter regime. Rudd later announced in her conference speech that there would be "tougher rules for students on lower quality courses". 

The economic case for reform is that students aid growth. The political case is that it would make the net migration target (which has been missed for six years) easier to meet (long-term immigration for study was 164,000 in the most recent period). But in May's view, excluding students from the target would be regarded by the public as a "fix" and would harm the drive to reduce numbers. If an exemption is made for one group, others will inevitably demand similar treatment. 

Universities complain that their lobbying power has been reduced by the decision to transfer ministerial responsibility from the business department to education. Bill Rammell, the former higher education minister and the vice-chancellor of Bedfordshire, said in July: “We shouldn’t assume that Theresa May as prime minister will have the same restrictive view on overseas students that Theresa May the home secretary had”. Some Tory MPs hoped that the net migration target would be abolished altogether in a "Nixon goes to China" moment.

But rather than retreating, May has doubled-down. The Prime Minister regards permanently reduced migration as essential to her vision of a more ordered society. She believes the economic benefits of high immigration are both too negligible and too narrow. 

Her ambition is a forbidding one. Net migration has not been in the "tens of thousands" since 1997: when the EU had just 15 member states and the term "BRICS" had not even been coined. But as prime minister, May is determined to achieve what she could not as home secretary. 

George Eaton is political editor of the New Statesman.