The financial crisis is, as everyone knows, far from over. Banks are still not lending; unemployment continues to rise. The threat of a protracted recession remains urgent. Why then are Britain’s bankers carrying on as if it were business as usual?
Salaries across the City are soaring in spite of the economic downturn and the ensuing bankruptcies, redundancies and repossessions. This past week it emerged that Goldman Sachs is planning to pay staff the biggest bonuses in its 140-year history.
Vince Cable argues in this week’s issue (see page 22) that the row over MPs’ expenses has diverted the public’s attention from the City, and that the disgrace of the political class has become the bankers’ salvation. Worse still, writes the Liberal Democrat Treasury spokesman and author of The Storm, the bestselling anatomy of the credit crunch, “the opportunity for renewal and reform is passing us by”.
It all seemed so different during the cataclysmic economic events of September and October. Then, the Labour government seemed to have rediscovered a long-dormant sense of moral and economic purpose, denouncing the excesses of the financial elite. Gordon Brown declared at the time that “the day of big bonuses is over”, to applause from many. As the financial system teetered on the brink of collapse, we argued that this was “a moment of opportunity and responsibility for Labour”.
Now, however, it seems that the opportunity has been squandered and the responsibility shrugged off. The near-£10m remuneration package announced on 22 June by the Royal Bank of Scotland for its new chief executive, Stephen Hester, is a case in point. RBS is a bailed-out bank, 70 per cent state-owned, making Hester – on his basic salary of £1.2m – the country’s best-paid public servant.
Whether they like it or not, those such as Hester, Northern Rock’s Gary Hoffman (basic pay: £700,000) and the Lloyds chief executive, Eric Daniels (£1.03m), are now state employees. Yet they refuse to be bound by any sense of public service.
The dilemma of New Labour is that Tony Blair and Gordon Brown struck a Faustian pact with the City, in which a lightly regulated financial sector delivered the high growth and tax revenues with which the Treasury funded public spending and its efforts at redistribution, mostly by stealth. Then came the crash, and everything changed – or, at least, that was what we were led to believe.
This past week, the government could have signalled to bankers and voters alike that it had learned the lessons from the worst financial crisis since the Great Depression. It could have insisted that RBS reconsider its plans to dismiss 11,700 members of its workforce, and ordered the bank to link any future bonuses for its chief executive to increased levels of lending in the long run, rather than to a ramped-up share price in the short run. It could also have used the row to launch a wide-ranging review of executive pay and consider proposals for restrictions on excessive bonuses.
Instead, the government remained predictably silent, and UK Financial Investments, the quango appointed by the Treasury to manage taxpayers’ stakes in the bailed-out banks, signed off on the Hester deal, sending the message that large pay packages across the City are once again acceptable.
In the United States, by contrast, Barack Obama employs the language of public service and the common good. The president has spoken repeatedly of the need for bankers to make “sacrifices” and has imposed a $500,000 annual pay limit on bailed-out bank executives. And on the European continent, centre-right governments in France and Germany have taken the lead in condemning bankers and their bonus culture, calling for greater financial regulation.
It is shameful that a Labour government should be outflanked on the issue of financial reform in this way. And it is sickening to see our wretched bankers dusting themselves down with taxpayers’ money not long after they dragged this country into the worst recession in living memory, brazenly carrying on as if nothing much had happened. The window of opportunity for reform is shutting. Labour has to act. The most important lesson of the financial crisis, which the government has yet to learn, is that banking is too important to be left to bankers.