Stephen Hester's magical misdirection: defending RBS's £5bn losses and £679m bonuses

RBS has announced losses of over £5.1bn and bonuses of £679m, after being bailed out by the taxpayer. Through Stephen Hester's sleight of hand, we are expected to believe that this has been a “chastening year” for the bank.

There is one essential ingredient to almost every magic trick: misdirection. Dangle something with your left hand, while your right pulls all manner of rabbits, bouquets, bonuses and silk handkerchiefs out of a top hat. Stephen Hester used it truly magnificently today, when he announced that RBS had posted losses of over £5.1bn, while doling out bonuses of £679m. This bonus pool is certainly not the “far lower” figure Treasury minister Danny Alexander had in mind, with commentators having predicted last month that it would be in the region of £250m.

Fret not, however. This figure is very modest, indeed the result of a “chastening year”, Hester argues, in an act that would leave Penn and Teller shaking their heads with bafflement. Modest compared to what? At which question, Hester starts pulling a number of shiny coins from behind our ears.

This figure is very modest, we are told, compared to the bonuses Barclays are expected to announce. Hang on, Stephen. Barclays is a privately owned company which has turned profit for the last couple of years. Your bonuses come directly from the money all of us stumped up to bail RBS out. What else have you got?

Oh, sorry, this figure is modest – punitive even – when you take into account that it has been reduced in order to recoup Libor-related fines to the tune of £300m. One momentito, if you please, Stev-o. Is what you are telling us, essentially, that if we compare it to an even higher and totally fictional figure, the actual figure is lower? Anything else?

This figure is modest when you compare it to last year’s figure of £800m. Sorry to interrupt again, but if one adds the £300m Libor fines, by which you claim to have reduced the bonus pool with the very specific purpose of penalising traders for manipulating the rate, then it would have been bigger than last year’s. Add to that the fact that you have engaged in a programme of redundancy of tens of thousands of employees – reducing the staff in the investment arm alone by roughly a quarter – and this must represent a real increase. Or am I missing something?

It seems that I am. The missing piece of the puzzle, as articulated by Hester, is that RBS needs to remain competitive by offering performance-related bonuses, in order to attract the best people. This includes a very competitive £2m paid to Hester himself. This view was fully endorsed by our beloved Prime Minister only today in a European context, in which, disgracefully in my view, he is gearing up to resist a move to cap bankers’ bonuses at EU level to 100 per cent of their salary or 200 per cent of their salary with board approval.

This is where reality and rhetoric disconnect – the latter flying off Hester’s outstretched finger, like a white dove. Which group of people – other than those working in the highest echelons of the financial sector – would view doubling or tripling their annual salary, after performing so exceptionally badly that the company lost over £5bn, as a snub?

This is the fundamental proposition which all this misdirection attempts flamboyantly and flagrantly to hide. At a time when millions are being made redundant all across Europe and unemployment rates hit record highs, at a time when everyone else’s salaries are being frozen or reduced in real terms (including lowly RBS staff), at a time when RBS itself, like most other banks, is laying off thousands of employees specifically from its investment banking arm – we are asked to believe that, at this time, investment banking is the only industry which is not an employer’s market.

And now turn your attention to what the other hand is doing: people being forced to work for nothing in order to maintain their basic benefits. Public servants – including the people who heal you when you are sick, protect you when you are threatened and teach your children – being told to do more with less. Tax credits vanishing for ordinary families. Benefits being capped for those being exploited by landlords. Drawn curtains. Closed blinds. Strivers and shirkers.

Contrast those two attitudes and a further policy assumption emerges. It is at the heart of everything this government is doing. While the poor can only be bullied into productivity by the threat of more poverty, the rich can only be coaxed into it by the promise of more wealth.

Perhaps we might hope for a shareholder revolt, similar to those recently observed in other large companies. Only,the one powerful shareholder in this case is the government and they have made their position clear on many occasions: it is time to stop with this banker-bashing and let the crème de la crème get on with the difficult work of losing billions and leading us into the next phase of this crisis, unfettered by regulation, decency, logic or morality.

Take a bow, Stephen Hester. Next stop, Las Vegas.

Protesters outside Royal Bank of Scotland HQ in London. Photograph: Getty Images

Greek-born, Alex Andreou has a background in law and economics. He runs the Sturdy Beggars Theatre Company and blogs here You can find him on twitter @sturdyalex

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School funding: the £3bn problem creeping up on Theresa May

Parents are starting to notice the consequence of schools funding changes. And they're not happy. 

As speculation grew last Tuesday morning that Theresa May would imminently call a snap general election, Kevin Courtney, the general secretary of the National Union of Teachers, was furiously re-writing the speech he was due to deliver at the union’s conference at noon.

The resulting changes included a pledge to put school funding “at the centre” of the union’s campaigning in the run-up to 8 June. Alongside a call to arms for teachers, he also wrote a message for parents.

“I am talking to the activists in this hall, but I have a wider audience in mind,” Courtney told teachers in Cardiff.

He was, he said, also addressing the “hundreds of thousands of teachers who aren’t here and the millions of parents and children currently engaged in our schools and colleges” and who were ready to mobilise against funding cuts. 

Tapping up angry parents as a campaign resource is nothing new. But the growing disquiet among the wider public as the school funding crisis reaches breaking point means the parents’ voices are now a particularly powerful tool. One the government could do without in the run-up to polling day.

The figures are stark – the Institute for Fiscal Studies says real-terms spending is set to fall by 6.5 per cent by 2020 – that’s the steepest cut in school funds since the 1990s.

Schools must find savings of £3bn by 2019-20, according to the National Audit Office. That’s the average salary of around 100,000 teachers.

The schoolcuts.org.uk website - put together by the unions using government data – shows that 99 per cent of schools will have per-pupil funding cut, and there are concerns the final version of the government’s upcoming new formula for handing out cash to schools will hit those in cities even harder than first thought.

But it is the plight of individual schools that is really getting through to parents. School leaders are increasingly having to ask them for donations, while the curriculum on offer to their children narrows, with creative subjects often the first to go because they do not count towards the government’s accountability measures.

Support services are being cut too. - Stuart McLaughlin, from Bower Park Academy, told the education select committee that he faced having to axe support staff roles, including those of the school’s counsellor and first aid officer. These are things that parents notice.

The impact of the government’s decision not to protect school funding in the face of rising costs from salary increases, pension and national insurance rises and other pressures such as the apprenticeship levy is now very visible on the ground, and parents are increasingly worried.

To an organisation like the NUT, the maths is simple. Its 300,000+ members can shout pretty loudly, but millions of parents can shout louder. With the unions facing a battle on two fronts – grammar schools and funding – they are going to need all the help they can get.

This is why groups like Fair Funding for All Schools are increasingly important. While the complaints of teachers and union members are often – wrongly – dismissed as scaremongering, parents make up a huge chunk of the electorate, and were already starting to organise before an election was even announced.

Jo Yurky, a mum of two from Haringey and founder of Fair Funding for All Schools, told the NUT conference last week that she was confused when she heard the head of her local secondary talk about needing to increase class sizes. She thought funding was protected, and had believed the government when it said it was spending a record amount on schools.

“Teachers and head teachers are trusted by parents – we leave our children in their care each day,” Yurky told teachers.

“They are speaking out publicly about their concerns out of desperation, because they are so worried about the financial situation in our schools. When headteachers speak, parents listen.”

Education funding is also a key campaign issue for Labour. Jeremy Corbyn has accused Theresa May’s government of breaking the 2015 manifesto commitment to protect the money following pupils into schools.

John McDonnell, the shadow chancellor, pledged last week to restore the role of the Local Education Authority and “fully-fund” schools, although the party will now have to explain in detail what this means in its upcoming manifesto (and where the money will come from).

However, this isn’t a partisan issue. Tory MPs Michael Fabricant, Tom Tugendhat, Maria Caulfield and James Duddridge are among those to have spoken out in parliament about cuts faced by schools in their constituencies under the proposed new school funding formula.

The government wasn’t due to publish its final funding plans until the summer anyway, but has rejected calls for it to bring the announcement forward to better inform voters, blaming pre-election purdah rules.

It is admirable to move cash around the system so it is more equitable for people in different places, but without injecting extra cash, ministers are simply moving inadequate levels of funding around, and children will lose out in the end.

It is no longer acceptable to parents, teachers, school leaders and children for the government to peddle its line that there is record funding going into schools. There are also record numbers of pupils in the system, so you’d hope that this would be the case.

Urgent action is needed to properly equip schools for the additional cost pressures they face, and if this doesn’t happen soon, Theresa May is going to see a lot more than just a few union activists attempting to block her road back to Downing Street.

 

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