How the bankers got away with it

Bank bonuses fell in the wake of the financial crash but have risen since.

In my column in this week's magazine (go on, get a subscription), I look at the level of bank bonuses before and after the financial crisis.

Since the crash, mindful of what the Harvard philosopher Michael Sandel described as "bailout outrage", politicians of all three parties have indulged in banker-bashing. But as the graph below shows, there is a significant gap between rhetoric and reality.

Bonus payouts peaked at £11.5bn in 2007 – the year before the crash – and fell to £5.3bn in 2008 following the bailout. Yet since then, as general living standards have continued to fall, the bonus pool has exceeded £7bn for two years running.

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With investment bank revenues falling, bonus levels are likely to be lower this year than in 2010. The 83 per cent state-owned RBS, which is expected to report a loss of roughly £613m, may pay nearer £1bn in bonuses than last year's £1.3bn. Such payments are at odds with the Tories' tough rhetoric in opposition, however. In 2009, George Osborne called for a ban on bonuses at banks that had received any sort of government guarantee. He later promised to block all cash bonuses over £2,000.

Osborne wasn't the only one. In his 2008 conference speech, David Cameron memorably spoke of a "day of reckoning" for the banks and, in his preface to the Liberal Democrats' manifesto, Nick Clegg declared that the banks should not be allowed to "ride roughshod" over the economy while handing out bonuses "by the bucketload".

The coalition's bank levy, which excludes the first £20bn of liabilities, is expected to raise just £1.25bn this year. By contrast, Alistair Darling's 50 per cent tax on bonuses over £25,000 raised £3.5bn last year.

Ministers rightly point out that the levy will raise more in subsequent years (£2.3bn in 2012 and £2.6bn in 2013) but they have yet to explain the shortfall in revenue this year. For reasons unknown, the government has set the levy at just 0.045 per cent this year but at 0.075 per cent next year and in following years.

The Financial Services Authority has ruled that at least half of all bonuses must be paid in shares rather than cash. But to voters facing the biggest squeeze in living standards since the 1920s, this is likely to be a distinction without a difference.

George Eaton is political editor of the New Statesman.

Photo: Getty
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Who will win in Manchester Gorton?

Will Labour lose in Manchester Gorton?

The death of Gerald Kaufman will trigger a by-election in his Manchester Gorton seat, which has been Labour-held since 1935.

Coming so soon after the disappointing results in Copeland – where the seat was lost to the Tories – and Stoke – where the party lost vote share – some overly excitable commentators are talking up the possibility of an upset in the Manchester seat.

But Gorton is very different to Stoke-on-Trent and to Copeland. The Labour lead is 56 points, compared to 16.5 points in Stoke-on-Trent and 6.5 points in Copeland. (As I’ve written before and will doubtless write again, it’s much more instructive to talk about vote share rather than vote numbers in British elections. Most of the country tends to vote in the same way even if they vote at different volumes.)

That 47 per cent of the seat's residents come from a non-white background and that the Labour party holds every council seat in the constituency only adds to the party's strong position here. 

But that doesn’t mean that there is no interest to be had in the contest at all. That the seat voted heavily to remain in the European Union – around 65 per cent according to Chris Hanretty’s estimates – will provide a glimmer of hope to the Liberal Democrats that they can finish a strong second, as they did consistently from 1992 to 2010, before slumping to fifth in 2015.

How they do in second place will inform how jittery Labour MPs with smaller majorities and a history of Liberal Democrat activity are about Labour’s embrace of Brexit.

They also have a narrow chance of becoming competitive should Labour’s selection turn acrimonious. The seat has been in special measures since 2004, which means the selection will be run by the party’s national executive committee, though several local candidates are tipped to run, with Afzal Khan,  a local MEP, and Julie Reid, a local councillor, both expected to run for the vacant seats.

It’s highly unlikely but if the selection occurs in a way that irritates the local party or provokes serious local in-fighting, you can just about see how the Liberal Democrats give everyone a surprise. But it’s about as likely as the United States men landing on Mars any time soon – plausible, but far-fetched. 

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