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

Chuka Umunna speaks at the launch of Labour's education manifesto during the general election. Photograph: Getty Images.
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After so badly misjudging the leadership contest, how will the Blairites handle Corbyn?

The left-winger's opponents are divided between conciliation and aggression. 

When Labour lost the general election in May, the party’s modernisers sensed an opportunity. Ed Miliband, one of the most left-wing members of the shadow cabinet, had been unambiguously rejected and the Tories had achieved their first majority in 23 years. More than any other section of the party, the Blairites could claim to have foreseen such an outcome. Surely the pendulum would swing their way?

Yet now, as Labour’s leadership contest reaches its denouement, those on the right are asking themselves how they misjudged the landscape so badly. Their chosen candidate, Liz Kendall, is expected to finish a poor fourth and the party is poised to elect Jeremy Corbyn, the most left-wing leader in its 115-year history. For a faction that never ceases to underline the importance of winning elections, it will be a humbling result.

Though the crash has been sudden, the Blairites have long been in decline. Gordon Brown won the leadership unchallenged and senior figures such as John Reid, James Purnell and Alan Milburn chose to depart from the stage rather than fight on. In 2010, David Miliband, the front-runner in the leadership election, lost to his brother after stubbornly refusing to distance himself from the Iraq war and alienating undecided MPs with his imperiousness.

When the younger Miliband lost, the modernisers moved fast – too fast. “They’re behaving like family members taking jewellery off a corpse,” a rival campaign source told me on 9 May. Many Labour supporters agreed. The rush of op-eds and media interviews antagonised a membership that wanted to grieve in peace. The modernising contenders – Chuka Umunna, Liz Kendall, Mary Creagh, Tristram Hunt – gave the impression that the Blairites wanted to drown out all other voices. “It was a huge mistake for so many players from that wing of the party to be put into the field,” a shadow cabinet minister told me. “In 1994, forces from the soft left to the modernising right united around Tony Blair. The lesson is never again can we have multiple candidates.”

While conducting their post-mortem, the Blairites are grappling with the question of how to handle Corbyn. For some, the answer is simple. “There shouldn’t be an accommodation with Corbyn,” John McTernan, Blair’s former director of political operations, told me. “Corbyn is a disaster and he should be allowed to be his own disaster.” But most now adopt a more conciliatory tone. John Woodcock, the chair of Progress, told me: “If he wins, he will be the democratically elected leader and I don’t think there will be any serious attempt to actually depose him or to make it impossible for him to lead.”

Umunna, who earlier rebuked his party for “behaving like a petulant child”, has emphasised that MPs “must accept the result of our contest when it comes and support our new leader in developing an agenda that can return Labour to office”. The shadow business secretary even suggests that he would be prepared to discuss serving in Corbyn’s shadow cabinet if he changed his stances on issues such as nuclear disarmament, Nato, the EU and taxation. Were Umunna, a former leadership contender, to adopt a policy of aggression, he would risk being blamed should Corbyn fail.

Suggestions that the new parliamentary group Labour for the Common Good represents “the resistance” are therefore derided by those close to it. The organisation, which was launched by Umunna and Hunt before Corbyn’s surge, is aimed instead at ensuring the intellectual renewal that modernisers acknowledge has been absent since 2007. It will also try to unite the party’s disparate mainstream factions: the Blairites, the Brownites, the soft left, the old right and Blue Labour. The ascent of Corbyn, who has the declared support of just 15 MPs (6.5 per cent of the party), has persuaded many that they cannot afford the narcissism of small differences. “We need to start working together and not knocking lumps out of each other,” Woodcock says. There will be no defections, no SDP Mk II. “Jeremy’s supporters really underestimate how Labour to the core the modernisers are,” Pat McFadden, the shadow Europe minister, told me.

Although they will not change their party, the Blairites are also not prepared to change their views. “Those of us on this side of Labour are always accused of being willing to sell out for power,” a senior moderniser told me. “Well, we do have political principles and they’re not up for bartering.” He continued: “Jeremy Corbyn is not a moderate . . .
He’s an unreconstructed Bennite who regards the British army as morally equivalent to the IRA. I’m not working with that.”

Most MPs believe that Corbyn will fail but they are divided on when. McFadden has predicted that the left-winger “may even get a poll bounce in the short term, because he’s new and thinking differently”. A member of the shadow cabinet suggested that Labour could eventually fall to as low as 15 per cent in the polls and lose hundreds of councillors.

The challenge for the Blairites is to reboot themselves in time to appear to be an attractive alternative if and when Corbyn falters. Some draw hope from the performance of Tessa Jowell, who they still believe will win the London mayoral selection. “I’ve spoken to people who are voting enthusiastically both for Jeremy and for Tessa,” Wes Streeting, the newly elected MP for Ilford North, said. “They have both run very optimistic, hopeful, positive campaigns.”

But if Corbyn falls, it does not follow that the modernisers will rise. “The question is: how do we stop it happening again if he does go?” a senior frontbencher said. “He’s got no interest or incentive to change the voting method. We could lose nurse and end up with something worse.” If the road back to power is long for Labour, it is longest of all for the Blairites. 

George Eaton is political editor of the New Statesman.

This article first appeared in the 03 September 2015 issue of the New Statesman, Pope of the masses