Bad politics, baffling diplomacy - Osborne's stance on bank bonuses

The government's posturing is about little more than saying enough to keep the eurosceptics quiet.

Of all the unpopular causes to take up, defending bank bonuses must rank pretty high up the list. That still applies even if it is the EU, rather than the House of Commons, doing the legislating.

But that doesn't seem to have deterred David Cameron. Yesterday George Osborne stood alone in opposition to a deal that could make the European banking sector safer and more transparent and which contains a number of major reforms actively pushed by the UK.
 
First, a disclaimer. The Capital Requirements legislation is not really about bonuses or bankers' pay. Instead, it focuses on increasing the amount of core capital banks must hold on their balance sheet. A lack of sufficient good quality capital combined with a liquidity crisis when the money markets seized up, were the two main causes of the 2007-9 banking crisis. More than five years on, the European and US economies are still yet to recover.
 
Increasing the minimum levels of capital to be held on their balance sheets and establishing rules to control leverage ratios will bring more safety to the banking sector. Moreover, the introduction of country-by-country reporting, which will require European banks to disclose how much tax they pay is another welcome breakthrough that will increase transparency and rebuild public trust in the banking sector. Like the country-by-country reporting, new rules on bank pay were among the baubles added to the tree.
 
The provisions on bonus payments are among the most complicated parts of an already highly technical piece of law. This strict 1:1 cap will be the norm but banks will be able to pay bonuses worth double salary on a majority vote among shareholders. Meanwhile, with up to 25 per cent of the bonus able to be made in deferred bonds or securities there is scope to spread out payments or make them dependent on long-term performance.
 
What I suspect is that the government's posturing is about little more than saying enough to keep the eurosceptics quiet. Boris Johnson, who has been consistent and vocal in his opposition to the regulation, quickly denounced the agreement as "self-defeating" and "deluded". The Prime Minister, correctly guessing that Thursday's by-election might lead to more questions about his leadership and the threat from UKIP, chose to add his two penn'orth.
 
But it is difficult to take the government's opposition at face value. First of all, this is not a case of Britain vs Europe. There have been a glut of EU laws regulating different parts of the financial sector since the financial crisis - short selling, the derivatives market, hedge funds and insurance just to name a few. Guess how many times Britain has been outvoted in the Council of Ministers by those perfidious foreigners? Zero, nada, zilch - it hasn't happened since the last European elections in 2009.
 
For all the hyperbole likely to dominate the pages of Conservative Home and the right-wing press, the British government has not been marginalised in the negotiations on CRD IV. On the contrary, it has led them and, indeed, wanted to go further than the European Commission on the level of core capital that banks should be required to hold. While it is true that the British government had expressed reservations about the bonus cap, a government official I spoke with described CRD IV as "a crucially important piece of legislation".
 
The same is true in the European Parliament. Liberal Democrat MEP Sharon Bowles and Conservative Vicky Ford, who were part of the Parliament's six-member negotiating team, both spoke favourably of the agreement at a press conference on Thursday last week. One of the Parliament's most vocal critics of the City, Green MEP Philippe Lamberts, another member of the Parliament's negotiating team, said that he had "felt like a Briton" on "most topics" covered by the legislation.
 
Ford went further, saying that the public "need to know how much banks are paying in tax". Referring to the exemption allowing bonuses to be paid in long-dated bonds or securities, she added that "the long-dated pay element should be examined before they (bankers) start screaming".
 
Besides, rules on bank pay should hardly be controversial at a time when pay levels in both the public and private sector are being tightly controlled. The Independent was among those arguing last week that politicians should not legislate on private sector pay. This might hold water if the banking sector had shown an iota of willingness to self-regulate to curb excessive pay. They have not, and too many top banking executives are still receiving multi-million pound rewards for presiding over multi-million or billion pound losses.
 
There is precious little the government can do to block a cap and they know it. The Irish government, which currently holds the six month rotating presidency of the Council of Ministers, would not have offered the compromise unless it was confident that all governments would sign up to it. For its part, the Parliament, which has given up tighter rules on bank leverage ratios in exchange for the bonus cap, will not want to unpick a painstakingly reached agreement and wants the symbolic victory of the bonus cap. Although other countries are anxious for Britain to vote in favour, the bill will be adopted by a qualified majority by ministers and the European Parliament, so there is no scope for a veto.
 
By promising to hold an 'in/out' referendum early in the next Parliament, Cameron is already running a high risk strategy on Europe. If he wants other countries to look kindly on the prospect of giving more opt-outs and exemptions to Britain then he needs allies and he needs to pick his battles wisely. Holding up vitally important legislation on bank capital for the sake of a losing battle on behalf of a few thousand multi-millionaires in the Square Mile is not just bad politics, but bad economics too.
 
Ben Fox is a reporter for EU Observer. He writes in a personal capacity
Chancellor George Osborne is pictured prior to an Economic and Financial Affairs Council on March 5, 2013 at the EU headquarters in Brussels. Photograph: Getty Images.
Photo: Getty
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The rise of the green mayor – Sadiq Khan and the politics of clean energy

At an event at Tate Modern, Sadiq Khan pledged to clean up London's act.

On Thursday night, deep in the bowls of Tate Modern’s turbine hall, London Mayor Sadiq Khan renewed his promise to make the capital a world leader in clean energy and air. Yet his focus was as much on people as power plants – in particular, the need for local authorities to lead where central governments will not.

Khan was there to introduce the screening of a new documentary, From the Ashes, about the demise of the American coal industry. As he noted, Britain continues to battle against the legacy of fossil fuels: “In London today we burn very little coal but we are facing new air pollution challenges brought about for different reasons." 

At a time when the world's leaders are struggling to keep international agreements on climate change afloat, what can mayors do? Khan has pledged to buy only hybrid and zero-emissions buses from next year, and is working towards London becoming a zero carbon city.

Khan has, of course, also gained heroic status for being a bête noire of climate-change-denier-in-chief Donald Trump. On the US president's withdrawal from the Paris Agreement, Khan quipped: “If only he had withdrawn from Twitter.” He had more favourable things to say about the former mayor of New York and climate change activist Michael Bloomberg, who Khan said hailed from “the second greatest city in the world.”

Yet behind his humour was a serious point. Local authorities are having to pick up where both countries' central governments are leaving a void – in improving our air and supporting renewable technology and jobs. Most concerning of all, perhaps, is the way that interest groups representing business are slashing away at the regulations which protect public health, and claiming it as a virtue.

In the UK, documents leaked to Greenpeace’s energy desk show that a government-backed initiative considered proposals for reducing EU rules on fire-safety on the very day of the Grenfell Tower fire. The director of this Red Tape Initiative, Nick Tyrone, told the Guardian that these proposals were rejected. Yet government attempts to water down other EU regulations, such as the energy efficiency directive, still stand.

In America, this blame-game is even more highly charged. Republicans have sworn to replace what they describe as Obama’s “war on coal” with a war on regulation. “I am taking historic steps to lift the restrictions on American energy, to reverse government intrusion, and to cancel job-killing regulations,” Trump announced in March. While he has vowed “to promote clean air and clear water,” he has almost simultaneously signed an order to unravel the Clean Water Rule.

This rhetoric is hurting the very people it claims to protect: miners. From the Ashes shows the many ways that the industry harms wider public health, from water contamination, to air pollution. It also makes a strong case that the American coal industry is in terminal decline, regardless of possibile interventions from government or carbon capture.

Charities like Bloomberg can only do so much to pick up the pieces. The foundation, which helped fund the film, now not only helps support job training programs in coal communities after the Trump administration pulled their funding, but in recent weeks it also promised $15m to UN efforts to tackle climate change – again to help cover Trump's withdrawal from Paris Agreement. “I'm a bit worried about how many cards we're going to have to keep adding to the end of the film”, joked Antha Williams, a Bloomberg representative at the screening, with gallows humour.

Hope also lies with local governments and mayors. The publication of the mayor’s own environment strategy is coming “soon”. Speaking in panel discussion after the film, his deputy mayor for environment and energy, Shirley Rodrigues, described the move to a cleaner future as "an inevitable transition".

Confronting the troubled legacies of our fossil fuel past will not be easy. "We have our own experiences here of our coal mining communities being devastated by the closure of their mines," said Khan. But clean air begins with clean politics; maintaining old ways at the price of health is not one any government must pay. 

'From The Ashes' will premiere on National Geograhpic in the United Kingdom at 9pm on Tuesday, June 27th.

India Bourke is an environment writer and editorial assistant at the New Statesman.

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