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.
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Find the EU renegotiation demands dull? Me too – but they are important

It's an old trick: smother anything in enough jargon and you can avoid being held accountable for it.

I don’t know about you, but I found the details of Britain’s European Union renegotiation demands quite hard to read. Literally. My eye kept gliding past them, in an endless quest for something more interesting in the paragraph ahead. It was as if the word “subsidiarity” had been smeared in grease. I haven’t felt tedium quite like this since I read The Lord of the Rings and found I slid straight past anything written in italics, reasoning that it was probably another interminable Elvish poem. (“The wind was in his flowing hair/The foam about him shone;/Afar they saw him strong and fair/Go riding like a swan.”)

Anyone who writes about politics encounters this; I call it Subclause Syndrome. Smother anything in enough jargon, whirr enough footnotes into the air, and you have a very effective shield for protecting yourself from accountability – better even than gutting the Freedom of Information laws, although the government seems quite keen on that, too. No wonder so much of our political conversation ends up being about personality: if we can’t hope to master all the technicalities, the next best thing is to trust the person to whom we have delegated that job.

Anyway, after 15 cups of coffee, three ice-bucket challenges and a bottle of poppers I borrowed from a Tory MP, I finally made it through. I didn’t feel much more enlightened, though, because there were notable omissions – no mention, thankfully, of rolling back employment protections – and elsewhere there was a touching faith in the power of adding “language” to official documents.

One thing did stand out, however. For months, we have been told that it is a terrible problem that migrants from Europe are sending child benefit to their families back home. In future, the amount that can be claimed will start at zero and it will reach full whack only after four years of working in Britain. Even better, to reduce the alleged “pull factor” of our generous in-work benefits regime, the child benefit rate will be paid on a ratio calculated according to average wages in the home country.

What a waste of time. At the moment, only £30m in child benefit is sent out of the country each year: quite a large sum if you’re doing a whip round for a retirement gift for a colleague, but basically a rounding error in the Department for Work and Pensions budget.

Only 20,000 workers, and 34,000 children, are involved. And yet, apparently, this makes it worth introducing 28 different rates of child benefit to be administered by the DWP. We are given to understand that Iain Duncan Smith thinks this is barmy – and this is a man optimistic enough about his department’s computer systems to predict in 2013 that 4.46 million people would be claiming Universal Credit by now*.

David Cameron’s renegotiation package was comprised exclusively of what Doctor Who fans call handwavium – a magic substance with no obvious physical attributes, which nonetheless helpfully advances the plot. In this case, the renegotiation covers up the fact that the Prime Minister always wanted to argue to stay in Europe, but needed a handy fig leaf to do so.

Brace yourself for a sentence you might not read again in the New Statesman, but this makes me feel sorry for Chris Grayling. He and other Outers in the cabinet have to wait at least two weeks for Cameron to get the demands signed off; all the while, Cameron can subtly make the case for staying in Europe, while they are bound to keep quiet because of collective responsibility.

When that stricture lifts, the high-ranking Eurosceptics will at last be free to make the case they have been sitting on for years. I have three strong beliefs about what will happen next. First, that everyone confidently predicting a paralysing civil war in the Tory ranks is doing so more in hope than expectation. Some on the left feel that if Labour is going to be divided over Trident, it is only fair that the Tories be split down the middle, too. They forget that power, and patronage, are strong solvents: there has already been much muttering about low-level blackmail from the high command, with MPs warned about the dire influence of disloyalty on their career prospects.

Second, the Europe campaign will feature large doses of both sides solemnly advising the other that they need to make “a positive case”. This will be roundly ignored. The Remain team will run a fear campaign based on job losses, access to the single market and “losing our seat at the table”; Leave will run a fear campaign based on the steady advance of whatever collective noun for migrants sounds just the right side of racist. (Current favourite: “hordes”.)

Third, the number of Britons making a decision based on a complete understanding of the renegotiation, and the future terms of our membership, will be vanishingly small. It is simply impossible to read about subsidiarity for more than an hour without lapsing into a coma.

Yet, funnily enough, this isn’t necessarily a bad thing. Just as the absurd complexity of policy frees us to talk instead about character, so the onset of Subclause Syndrome in the EU debate will allow us to ask ourselves a more profound, defining question: what kind of country do we want Britain to be? Polling suggests that very few of us see ourselves as “European” rather than Scottish, or British, but are we a country that feels open and looks outwards, or one that thinks this is the best it’s going to get, and we need to protect what we have? That’s more vital than any subclause. l

* For those of you keeping score at home, Universal Credit is now allegedly going to be implemented by 2021. Incidentally, George Osborne has recently discovered that it’s a great source of handwavium; tax credit cuts have been postponed because UC will render such huge savings that they aren’t needed.

Helen Lewis is deputy editor of the New Statesman. She has presented BBC Radio 4’s Week in Westminster and is a regular panellist on BBC1’s Sunday Politics.

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