Why Stephen Hester's £963,000 bonus is a distraction

Quibbling over the bonus paid to the RBS boss is simply gesture politics.

Stephen Hester, the head of the Royal Bank of Scotland, is to receive a bonus of £963,000. Predictably, this has triggered outrage among the commentariat, and harsh condemnations from politicians.

Liberal Democrat Foreign Minister, Jeremy Browne, told Question Time that Hester should decline the bonus as "a question of honour", while the shadow business secretary Chuka Umunna told the Today programme that Hester's salary of more than £1m should be sufficient reward for doing a good job.

Outrage around bonus season is becoming something of an annual tradition. But what purpose does it really serve? In the last few hours alone, I've heard three radio discussions of the ins and outs of Hester's package. It's half what he received last year; it will all be paid in shares; he could have been earning much more in another job; he wasn't even a banker at the time of the crash.

There is no disputing that the sums of money involved are grotesque. The fundamental injustice that bankers continue to receive ludicrous sums of money while jobs are being lost across the country prompts a visceral anger in many people. This very real, very widespread rage is what politicians are attempting to tap into when they indulge in a spot of banker-bashing.

One point that comes up repeatedly is that of fairness: why should these people earn more than doctors, nurses, civil servants, or engineers? It's a valid question, but it is not answered by removing one banker's bonus. Scoring political points by forcing one individual to refuse their reward package does not solve the wider problem of sky-high financial remuneration.

In this summary of the arguments for and against banker's bonuses, Dr Ruth Bender of the Cranfield School of Management explains that change to pay packages must be consistent:

We cannot change pay for just some bankers -- just in the UK, or only in certain banks -- any more than we can change the traffic rules so that blue or red cars have to drive on the right! A few years ago I did research into executive pay, interviewing the great and the good to determine why they got paid what they did. One City CEO explained it very simply. He said that if "they" were to halve the pay of all the CEOs in the City, then no-one would bat an eyelid. But it would have to be all the CEOs. If even one individual retained his high compensation, then the others would demand parity.

RBS is a taxpayer-owned bank, and it is fair that it is subject to extreme scrutiny. But this forensic focus on the remuneration package of Hester, who is, at the end of the day, just one person, risks acting as a distraction from deep systemic, structural problems. Both EU and UK regulation have so far failed to addressed these deeper issues, preferring to focus on the symptoms rather than the causes.

This Economist blog summarises what some of these problems are:

Taxpayers' underwriting of bankers' operations -- socialised risk and privatised reward -- is one clear reason for excessive returns. The cartel-like structure of high-end banking, driven by both regulatory barriers to entry and economies of scale, also enables the sector to generate rents.

But in investment banking, the biggest cause of high pay could be clients' principle-agent problem and the "natural" inefficiency of big deals. When a management team chooses an investment bank, they likely to be more concerned about protecting their reputation ("no one got fired for hiring Goldman Sachs") than saving money. And in a multibillion dollar deal, shareholders are unlikely to kick up a fuss over a few million dollars wasted on expensive bankers. As a banker interviewed by the New Yorker put it, "[if] you are going to do a five-billion-dollar deal...Are you really going to fight about whether a certain fee is 2.5 per cent or 3.3 per cent?"

So, no, objectively Hester shouldn't be receiving such a high bonus. But it is the system which makes this compensation expected -- necessary, even -- that should be looked at, not the details of the payment received by one man, in one year. Such gesture politics do nothing to solve the underlying problem. We should be more worried about that fact that no-one appears willing to undertake the fundamental restructuring of the financial sector that would ensure fairness and prevent another financial crash.

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

Nicola Sturgeon and Tony Blair. Photo: Getty
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Nicola Sturgeon's SNP, like Tony Blair's New Labour, is heading for a crash landing

The fall of Tony Blair should be a set text for anyone wishing to know what happens next to the SNP.

If there was one thing the SNP and New Labour had in common, it was the hope. Both offered themselves as a burning torch of optimism to publics that had become tired of the same old gang running things in the same old way. Both promised a fairer, more equal society and a fearless embrace of the modern world with an appealing freshness and energy. The voters bought it: both won big, repeatedly.

The thing is, if you’re elected on a mandate to be different, you’d better be different. In many areas, for a long time, New Labour managed to be just that. The smiling PM with the huge majority pushed through radical policies, some of which even worked. Tony Blair’s methodology was so successful and so convincing that the Conservatives and the Lib Dems reshaped themselves in his likeness. Arguably, a form of New Labour won in 2010 and 2015.

But, as they say, it’s the hope that kills you. When the inevitable attritional realities of governing start to weigh, when you make, as you will, bad decisions, when the list of enemies grows long, when you’ve just had your time, you’ll fall like all the rest – only, when you’ve soared so close to the sun, you have that much further to plummet.

The fall of Blair and of Labour should be a set text for anyone wishing to know what happens next to the SNP. Sunday night’s debate between the Scottish party leaders was, I think, a foretaste of what’s coming – a public that until recently was politically and emotionally invested in the Nats is growing restive. In time, this will turn to disenchantment, then anger, then revenge at the ballot box. This is the unbreakable cycle of democratic politics.

Some of us have warned since the start that the SNP had over-promised and could only under-deliver. Its raison d’etre is independence; everything else - literally everything else - is just another brick to build the path. And so education reform cannot be either radical or unpopular, even if it needs to be so to work, because the SNP cannot afford to alienate teachers or the teaching unions or parents. Bricks, you see. Same with the NHS and doctors and health unions and patients. All the separatists have done – all they could have done, given their nature - is deploy the rhetoric of the radical while in reality body-swerving hard choices and conflict at any cost. And where they have found themselves taking flak, they’ve pointed south to Westminster: "it’s no’ our fault, it’s theirs".

But voters show signs of wearying of the predictable blame game and waking up to the time-limited strategy of show-over-substance. Middle Scotland is either ignored or maligned by the middle-class socialists who drive the nation’s political debate, but it is where elections are won. The SNP has secured the support of enough of these people to win every recent election in style, but somewhere along the way the party seems to have forgotten this was a mandate not for independence, but for good government. Ten years in to SNP rule, each new audit of public services seems to wail like a warning siren – things aren’t just not improving, they’re getting worse. The SNP is not keeping its part of the deal.

So, during Sunday night’s debate it was Nicola Sturgeon, not Ruth Davidson or Kezia Dugdale, who found herself in the audience’s cross-hairs. It will have been a strange experience for a woman more used to public adulation and a clamour for selfies. There were the teachers, who complained about the damp squib that is the Curriculum for Excellence, the SNP’s flagship education policy; who pointed out that a fifth of primary pupils are leaving without basic literacy and numeracy skills; and who warned that lowering the standard of exams in order to push up the pass rate was not a mark of success.

Then there was the nurse who said she had been forced to use a food bank (the existence of which has been used repeatedly by the SNP as a stick with which to beat the Conservatives and Westminster): ‘I can’t manage on the salary I have [which is set by the Scottish Government]. You have no idea how demoralising it is to work in the NHS. Don’t come on your announced visits, come in in the middle of any day to any ward, any A&E department and see what we’re up against.’ She delivered the evening’s killer line: ‘Do you think your perceived obsession with independence might actually cost you… in this election?’

The list of reasonable criticisms is growing and will grow further. The ideological obsession with free university tuition for Scottish students is increasingly seen as a sop to the better-off, while in England the fee-charging regime has seen the number of students coming from poorer families climb. Ms Sturgeon’s demand for a quick second independence referendum, when a worried middle Scotland was focused on what Brexit might mean for its future, was tone deaf.

The SNP has another problem (one that New Labour, for all its flaws, didn’t face): its doctrine of infallibility. The Nats’ constitution explicitly prohibits its elected members from criticising the party, its policies or each other. While total unity is useful when you’re on the climb, it starts to look bonkers when the cracks are showing. Allowing public self-criticism, far from being a sign of weakness, is a necessary vent for inner tensions and a sign to voters that a political party is something more than a cult.

That ‘cult’ word has long dogged the SNP and its supporters. The party has tried hard to normalise its electoral appeal while keeping the flame of independence burning bright, but it has been a difficult balancing act. The pro-independence mob is an ugly thing when it is unleashed (and it has suited the leadership to open the cage at times). Claire Austin, the nurse who criticised the First Minister on Sunday, has found herself at its mercy. Immediately after the debate, the Nats briefed (wrongly) that she was the wife of a Tory councilor. The SNP branch in Stirling said Tebbitishly that if she was having to use food banks "maybe she needs to tighten her belt a bit more?" Joanna Cherry, a QC, MP and the SNP’s Home Affairs spokesperson, was forced to publicly apologise for spreading "Twitter rumours" about Ms Austin.

The ravening horde has largely kept its head down since the 2014 independence referendum, but we now see it hasn’t gone away - it is not enough for the SNP’s critics to be debated, they must be destroyed. This isn’t the behaviour of a normal political party: it’s the behaviour of a cult.

I might be wrong, but I have a feeling that when the SNP does fall it will fall quite quickly. Its belief in its infallibility, its inability or unwillingness to do self-deprecation or apology, will increasingly aggravate voters. There is nothing to suggest the current public policy failings will be addressed, and plenty of signs that things will get worse. How, then, do you arrest your fall?

The SNP offered hope and promised it was different, and the voters believed. The sense of betrayal could make for a very hard landing indeed.

Chris Deerin is the New Statesman's contributing editor (Scotland). 

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