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EU will limit bankers’ bonuses

Deal falls well short of London’s demands.

The European Union (EU) has agreed to limit bankers’ bonuses at two times salary and banks will be subject to a strict transparency regime under a provisional deal.

Members of the European Parliament have secured an agreement on a mandatory 1:1 ratio on salary relative to variable pay, which can rise to 2:1 with explicit shareholder approval.

The deal includes minimal concessions to reduce the most severe pay crackdown since the 2008 financial crisis.

For the City of London, the impact of deal will be partly softened by giving more favourable treatment to long-term pay linked to the health of a bank, such as equity or bonds that are written down when an institution fails, according to the Financial Times (FT).

The deal, if approved, will pave the way to legislate the Basel III capital rules. Apart from a prized bonus cap, banks of the EU have to reveal their taxes and profits on a country-by-country basis from 2015.

Michel Barnier, the EU commissioner responsible for the reforms, said it was “difficult to imagine now that we would scrap this compromise”.

London mayor Boris Johnson, in a statement, said: “People will wonder why we stay in the EU if it persists in such transparently self-defeating policies. Brussels cannot control the global market for banking talent, Brussels cannot set pay for bankers around the world.”

Once approved, banks are required to strengthen their buffers of equity and liquid assets to Basel standards over the next six years.

“I don’t think bankers should be treated as special creatures in any way - perhaps that was one of problems of past,” Stephen Hester, CEO of Royal Bank of Scotland, told the BBC. “We’ve got to apply the rules to everyone whatever those rules may be,” he added.

EU will investigate the data of big banks in 2014 and has the right to recommend a delay to implementation if the transparency is shown to significantly hurt the competitiveness of EU companies.

Vicky Ford, a British MEP who negotiated for the parliament, told the FT: “I hope there can be a workable solution [on remuneration]. But banks need to look at the whole of the package.”

Othmar Karas, the European Parliament’s negotiator said: “For the first time in the history of EU financial market regulation, we will cap bankers’ bonuses . . . The essence is that from 2014, European banks will have to set aside more money to be more stable and concentrate on their core business.”

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Is anyone prepared to solve the NHS funding crisis?

As long as the political taboo on raising taxes endures, the service will be in financial peril. 

It has long been clear that the NHS is in financial ill-health. But today's figures, conveniently delayed until after the Conservative conference, are still stunningly bad. The service ran a deficit of £930m between April and June (greater than the £820m recorded for the whole of the 2014/15 financial year) and is on course for a shortfall of at least £2bn this year - its worst position for a generation. 

Though often described as having been shielded from austerity, owing to its ring-fenced budget, the NHS is enduring the toughest spending settlement in its history. Since 1950, health spending has grown at an average annual rate of 4 per cent, but over the last parliament it rose by just 0.5 per cent. An ageing population, rising treatment costs and the social care crisis all mean that the NHS has to run merely to stand still. The Tories have pledged to provide £10bn more for the service but this still leaves £20bn of efficiency savings required. 

Speculation is now turning to whether George Osborne will provide an emergency injection of funds in the Autumn Statement on 25 November. But the long-term question is whether anyone is prepared to offer a sustainable solution to the crisis. Health experts argue that only a rise in general taxation (income tax, VAT, national insurance), patient charges or a hypothecated "health tax" will secure the future of a universal, high-quality service. But the political taboo against increasing taxes on all but the richest means no politician has ventured into this territory. Shadow health secretary Heidi Alexander has today called for the government to "find money urgently to get through the coming winter months". But the bigger question is whether, under Jeremy Corbyn, Labour is prepared to go beyond sticking-plaster solutions. 

George Eaton is political editor of the New Statesman.