EU nears cap on banker bonuses, as Osborne holds out

The UK is one of just three countries opposed to the cap.

EU banking reforms are set to impose a limit on bankers' pay, against the wishes of much of the City of London.

The proposal, backed by the democratically-elected European Parliament, would cap bonuses that exceed the recipients salary. France has recently come around to the idea, and, the Financial Times reports, there is now a "clear majority" which is willing to agree to the cap just to get the debate out of the way. The rest of the reforms, which are focused on bank capital ratios, are considered urgent, and there is little desire to hold them up over the pay caps.

The UK, leading those who oppose the pay caps, has suggested that even it is preparing to case on the basic idea, circulating a policy document suggesting reforms which "build on the principle of a cap", the paper reports:

It strengthens current rules enforced in the UK with an absolute ban on upfront cash bonuses that exceed salary and a requirement for bank shareholders to set a cap on variable to fixed pay.

But a ban on upfront cash bonuses is very different from the ban on the entire bonus exceeding salary. That proposed ban can, with a vote from a supermajority of shareholders, be weakened to a 2:1 ratio of bonus to salary, but even that is still a far more restrictive requirement than the one the UK desires.

The British government has reasons for its scepticism. The argument for including bonuses in a bill focused on bank stability is that, when a bonus can exceed the value of one's salary, the incentive to play it safe rather than go for massive short-term profits is reduced. But the UK also makes a compelling argument for focusing just on cash bonuses. Other types of bonus, like front-dated stock options or bonds which vest only if the employer still exists, can be tweaked so as to encourage not only profit but healthy, stable, profit.

In contrast, if the EU's current plan passes, the incentive will be to offer the entire value of the cap in up-front cash. The magnitude of the bonus may thus be shrunk, but its incentive effects could end up being perversely increased.

Nonetheless, politically the economic effects of the bonus cap are likely to be less important than the simple fact of its existence. The banking sector has been seen as overpaid by most of the British public for a very long time now, and if Osborne digs his heels in over what many will see as the right for banks to pay unlimited bonuses, he could find himself even more unpopular than he already is.

That is especially true if the importance of what is being delayed hits home. The capital ratios — which are the main focus of the talks — are widely seen as one of the first post-crisis regulations which could actually have a real effect on the likelihood and severity of future financial crises. By requiring banks to have a certain amount of liquid capital on hand, the move will, it is hoped, prevent the damaging bank runs which ultimately contributed to the recession in 2008. If the Chancellor is seen as holding the economy hostage over the right for banks to pay unlimited bonuses, his image as a canny political operative may be damaged somewhat.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Labour's establishment suspects a Momentum conspiracy - they're right

Bernie Sanders-style organisers are determined to rewire the party's machine.  

If you wanted to understand the basic dynamics of this year’s Labour leadership contest, Brighton and Hove District Labour Party is a good microcosm. On Saturday 9 July, a day before Angela Eagle was to announce her leadership bid, hundreds of members flooded into its AGM. Despite the room having a capacity of over 250, the meeting had to be held in three batches, with members forming an orderly queue. The result of the massive turnout was clear in political terms – pro-Corbyn candidates won every position on the local executive committee. 

Many in the room hailed the turnout and the result. But others claimed that some in the crowd had engaged in abuse and harassment.The national party decided that, rather than first investigate individuals, it would suspend Brighton and Hove. Add this to the national ban on local meetings and events during the leadership election, and it is easy to see why Labour seems to have an uneasy relationship with mass politics. To put it a less neutral way, the party machine is in a state of open warfare against Corbyn and his supporters.

Brighton and Hove illustrates how local activists have continued to organise – in an even more innovative and effective way than before. On Thursday 21 July, the week following the CLP’s suspension, the local Momentum group organised a mass meeting. More than 200 people showed up, with the mood defiant and pumped up.  Rather than listen to speeches, the room then became a road test for a new "campaign meetup", a more modestly titled version of the "barnstorms" used by the Bernie Sanders campaign. Activists broke up into small groups to discuss the strategy of the campaign and then even smaller groups to organise action on a very local level. By the end of the night, 20 phonebanking sessions had been planned at a branch level over the following week. 

In the past, organising inside the Labour Party was seen as a slightly cloak and dagger affair. When the Labour Party bureaucracy expelled leftwing activists in past decades, many on went further underground, organising in semi-secrecy. Now, Momentum is doing the exact opposite. 

The emphasis of the Corbyn campaign is on making its strategy, volunteer hubs and events listings as open and accessible as possible. Interactive maps will allow local activists to advertise hundreds of events, and then contact people in their area. When they gather to phonebank in they will be using a custom-built web app which will enable tens of thousands of callers to ring hundreds of thousands of numbers, from wherever they are.

As Momentum has learned to its cost, there is a trade-off between a campaign’s openness and its ability to stage manage events. But in the new politics of the Labour party, in which both the numbers of interested people and the capacity to connect with them directly are increasing exponentially, there is simply no contest. In order to win the next general election, Labour will have to master these tactics on a much bigger scale. The leadership election is the road test. 

Even many moderates seem to accept that the days of simply triangulating towards the centre and getting cozy with the Murdoch press are over. Labour needs to reach people and communities directly with an ambitious digital strategy and an army of self-organising activists. It is this kind of mass politics that delivered a "no" vote in Greece’s referendum on the terms of the Eurozone bailout last summer – defying pretty much the whole of the media, business and political establishment. 

The problem for Corbyn's challenger, Owen Smith, is that many of his backers have an open problem with this type of mass politics. Rather than investigate allegations of abuse, they have supported the suspension of CLPs. Rather than seeing the heightened emotions that come with mass mobilisations as side-effects which needs to be controlled, they have sought to joins unconnected acts of harassment, in order to smear Jeremy Corbyn. The MP Ben Bradshaw has even seemed to accuse Momentum of organising a conspiracy to physically attack Labour MPs.

The real conspiracy is much bigger than that. Hundreds of thousands of people are arriving, enthusiastic and determined, into the Labour party. These people, and their ability to convince the communities of which they are a part, threaten Britain’s political equilibrium, both the Conservatives and the Labour establishment. When the greatest hope for Labour becomes your greatest nightmare, you have good call to feel alarmed.