Don't be too hard on Osborne: the bonus cap is horribly flawed

What will happen to bankers pay? Very little. To their risk taking? Very little. To, basically, anything? You guessed it.

In opposing the EU's cap on bankers' bonuses, George Osborne isn't just giving nakedly preferential treatment to the city. The chancellor does have some strong arguments on his side as to why the cap is a bad idea.

To recap, late on Wednesday, the EU parliament secured agreement to impose a mandatory 1:1 ratio of salary relative to "variable pay". That ratio can rise to 2:1 with shareholder approval (subject to 50 per cent quorum), but no further. Britain still has the option of pushing the move to a vote, but that would cross a rubicon in UK-EU relations: in the past, Britain, commonly an outlier in matters of banking policy, has pushed negotiations to the brink of formal vote and then taken a few ceremonial trade-offs in return for its approval. That way, it can truthfully say it has never been overruled by the EU.

Not only would forcing a vote we would definitely lose play terribly politically — George Osborne making his biggest-ever stand in the EU over the right of bankers to be paid exorbitant sums — it would also be a gift to the anti-EU wing of the conservative party, of which Osborne is, thankfully, not a member.

But while he shouldn't force a vote, the Chancellor has good reasons for being wary of the policy. There are three big concerns, two of which are legitimate, and two of which are shared by the chancellor (although not the same two).

The first is that the policy will do nothing for equality. Despite the fact that the cap on bonuses is sometimes phrased as tackling "high pay", it will, in all likelihood, increase pay. As Deborah Hargreaves writes:

Already base salaries in the banking sector have been rising sharply as regulators try and choke off the multimillion-pound annual bonus awards. The EU's plan could lead to more pressure for a rise in fixed pay.

Banks have increased salaries across Europe by 37% in the past four years in response to a crackdown on bonuses and pressure from regulators to claw back some rewards if bets go wrong later on.

The reasoning is fairly obvious. If you cap bonuses at the same level as salaries, and put no limit on salaries, it's clear what's going to happen.

Of course, that's fairly unlikely to be a motivating factor in Osborne's reasoning. If there's one thing the Conservatives are comfortable with, it's people getting filthy rich (although they seem to quietly ignore the "as long as they pay their taxes" part of Peter Mandleson's famous phrase). But it's an important argument against the bonus cap overall.

Not such a strong argument is that banks might flee the EU to avoid it. There is certainly going to be some pressure, because the cap has overreached such that it also affects international operations of EU-based banks. The name being bandied around is Standard Chartered, the London-based firm that does most of its work in emerging markets (back in the news at the moment over it's £110,000 fine in Taiwan). But the cap can't be both easy-to-evade and a motivation to spend time and money moving headquarters, and all indications are that it's the former rather than the latter.

But the biggest problem with the bonus cap is that it won't do anything to address the most important reason for its introduction: tackling risk in the banking sector. The model Osborne and the UK proposed instead was likely to be better in that regard: "our" desired cap would only hit cash bonuses. That would provide an incentive on banks to award increasing chunks of their pay pool in the form of stock options and the like, which encourage bankers to act in the long-term interest of their company, not merely boost their returns for that year to enhance their bonus.

In fact, it's questionable whether bonuses even encourage must risk-taking at all. Crooked Timber's Dan Davies demonstrates that, assuming a bonus is linearly related to performance, the bulk of the bonus encourages very little risk taking at all. Employees have a motivation to take risks if their performance is poor enough that they would get no bonus, but once they have some bonus, every further risk they take is as likely to decrease their income as it is to increase it.

Maybe, as the Guardian suggests, the bonus cap was worth it just to make bankers publicly admit that their high pay has little to do with their actual ability. But for any genuine policy aims, it seems unlikely to be as successful as its promotors hope.

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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All the Premiership teams are competing to see who’s got the biggest stadium

It’s not just a financial, but a macho thing – the big clubs want to show off that they have a whopper.

Here in NW5, where we live noisily and fashionably, we are roughly equidistant from Arsenal and Spurs. We bought the house in 1963 for £5,000, which I mention constantly, to make everyone in the street pig sick. Back in 1963, we lived quietly and unfashionably; in fact, we could easily have been living in Loughton, Essex. Now it’s all changed. As have White Hart Lane and Highbury.

Both grounds are a few metres further away from us than they once were, or they will be when White Hart Lane is finished. The new stadium is a few metres to the north, while the Emirates is a few metres to the east.

Why am I saying metres? Like all football fans, I say a near-miss on goal was inches wide, a slow striker is a yard off his pace, and a ball player can turn on a sixpence. That’s more like it.

White Hart Lane, when finished, will hold 61,000 – a thousand more than the Emirates, har har. Meanwhile, Man City is still expanding, and will also hold about 60,000 by the time Pep Guardiola is into his stride. Chelsea will be next, when they get themselves sorted. So will Liverpool.

Man United’s Old Trafford can now hold over 75,000. Fair makes you proud to be alive at this time and enjoying the wonders of the Prem.

Then, of course, we have the New Wembley, architecturally wonderful, striking and stunning, a beacon of beauty for miles around. As they all are, these brave new stadiums. (No one says “stadia” in real life.)

The old stadiums, built between the wars, many of them by the Scottish architect Archibald Leitch (1865-1939), were also seen as wonders of the time, and all of them held far more than their modern counterparts. The record crowd at White Hart Lane was in 1938, when 75,038 came to see Spurs play Sunderland. Arsenal’s record at Highbury was also against Sunderland – in 1935, with 73,295. Wembley, which today can hold 90,000, had an official figure of 126,000 for the first Cup Final in 1923, but the true figure was at least 150,000, because so many broke in.

Back in 1901, when the Cup Final was held at Crystal Palace between Spurs and Sheffield United, there was a crowd of 110,820. Looking at old photos of the Crystal Palace finals, a lot of the ground seems to have been a grassy mound. Hard to believe fans could see.

Between the wars, thanks to Leitch, big clubs did have proper covered stands. Most fans stood on huge open concrete terraces, which remained till the 1990s. There were metal barriers, which were supposed to hold back sudden surges, but rarely did, so if you were caught in a surge, you were swept away or you fell over. Kids were hoisted over the adults’ heads and plonked at the front.

Getting refreshments was almost impossible, unless you caught the eye of a peanut seller who’d lob you a paper bag of Percy Dalton’s. Getting out for a pee was just as hard. You often came home with the back of your trousers soaked.

I used to be an expert on crowds as a lad. Rubbish on identifying a Spitfire from a Hurricane, but shit hot on match gates at Hampden Park and Ibrox. Answer: well over 100,000. Today’s new stadiums will never hold as many, but will cost trillions more. The money is coming from the £8bn that the Prem is getting from TV for three years.

You’d imagine that, with all this money flooding in, the clubs would be kinder to their fans, but no, they’re lashing out, and not just on new stadiums, but players and wages, directors and agents. Hence, so they say, they are having to put up ticket prices, causing protest campaigns at Arsenal and Liverpool. Arsène at Arsenal has admitted that he couldn’t afford to buy while the Emirates was being built. Pochettino is saying much the same at Spurs.

It’s not just a financial, but a macho thing – the big clubs want to show off that they have a whopper. In the end, only rich fans will be able to attend these supergrounds. Chelsea plans to have a private swimming pool under each new box, plus a wine cellar. Just like our street, really . . . 

Hunter Davies is a journalist, broadcaster and profilic author perhaps best known for writing about the Beatles. He is an ardent Tottenham fan and writes a regular column on football for the New Statesman.

This article first appeared in the 11 February 2016 issue of the New Statesman, The legacy of Europe's worst battle