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.

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Brexiteers want national sovereignty and tighter borders – but they can't have both

The role of the European Court of Justice is a major sticking point in talks.

Why doesn't Theresa May's counter-offer on the rights of European citizens living and working in Britain pass muster among the EU27? It all comes down to one of the biggest sticking points in the Brexit talks: the role of the European Court of Justice.

The European Commission, under direction from the leaders of member states, wants the rights of the three million living here and of the British diaspora in the EU guaranteed by the European Court. Why? Because that way, the status of EU citizens here or that of British nationals in the EU aren't subject to the whims of a simple majority vote in the legislature.

This is where Liam Fox, as crassly he might have put it, has a point about the difference between the UK and the EU27, being that the UK does not "need to bury" its 20th century history. We're one of the few countries in the EU where political elites get away with saying, "Well, what's the worst that could happen?" when it comes to checks on legislative power. For the leaders of member states, a guarantee not backed up by the European Court of Justice is no guarantee at all.

That comes down to the biggest sticking point of the Brexit talks: rules. In terms of the deal that most British voters, Leave or Remain, want – a non-disruptive exit that allows the British government to set immigration policy – UK politicians can get that, provided they concede on money and rules, ie we continue to follow the directions of the European Court while having no power to set them. Britain could even seek its own trade deals and have that arrangement.

But the problem is that deal runs up against the motivations of the Brexit elite, who are in the main unfussed about migration but are concerned about sovereignty – and remaining subject to the rule of the ECJ without being able to set its parameters is, it goes without saying, a significant loss of sovereignty. 

Can a fudge be found? That the Article 50 process goes so heavily in favour of the EU27 and against the leaving member means that the appetite on the EuCo side for a fudge is limited. 

But there is hope, as David Davis has conceded that there will have to be an international guarantor, as of course there will have to be. If you trade across borders, you need a cross-border referee. If a plane goes up in one country and lands in another, then it is, by necessity, regulated across borders. (That arrangement has also been mooted by Sigmar Gabriel, foreign minister in Angela Merkel's government. But that Gabriel's centre-left party looks likely to be expelled from coalition after the next election means that his support isn't as valuable as many Brexiteers seem to think.)

On the Conservative side, a new EU-UK international body would satisfy the words of May's ECJ red line. On the EU27 side, that the body would, inevitably, take its lead from the treaties of the EU sans Britain and the ECJ would mean that in spirit, Britain would be subject to the ECJ by another name.

But it comes back to the Brexit dilemma. You can satisfy the voters' demand for non-disruptive control of British borders. You can satisfy political demand for sovereignty. But you can't have both. May – and whoever replaces her – will face the same question: who do you disappoint?

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to domestic and global politics.

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