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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The strange death of boozy Britain: why are young people drinking less?

Ditching alcohol for work.

Whenever horrific tales of the drunken escapades of the youth are reported, one photo reliably gets wheeled out: "bench girl", a young woman lying passed out on a public bench above bottles of booze in Bristol. The image is in urgent need of updating: it is now a decade old. Britain has spent that time moving away from booze.

Individual alcohol consumption in Britain has declined sharply. In 2013, the average person over 15 consumed 9.4 litres of alcohol, 19 per cent less than 2004. As with drugs, the decline in use among the young is particularly notable: the proportion of young adults who are teetotal increased by 40 per cent between 2005 and 2013. But decreased drinking is not only apparent among the young fogeys: 80 per cent of adults are making some effort to drink less, according to a new study by consumer trends agency Future Foundation. No wonder that half of all nightclubs have closed in the last decade. Pubs are also closing down: there are 13 per cent fewer pubs in the UK than in 2002. 

People are too busy vying to get ahead at work to indulge in drinking. A combination of the recession, globalisation and technology has combined to make the work of work more competitive than ever: bad news for alcohol companies. “The cost-benefit analysis for people of going out and getting hammered starts to go out of favour,” says Will Seymour of Future Foundation.

Vincent Dignan is the founder of Magnific, a company that helps tech start-ups. He identifies ditching regular boozing as a turning point in his career. “I noticed a trend of other entrepreneurs drinking three, four or five times a week at different events, while their companies went nowhere,” he says. “I realised I couldn't be just another British guy getting pissed and being mildly hungover while trying to scale a website to a million visitors a month. I feel I have a very slight edge on everyone else. While they're sleeping in, I'm working.” Dignan now only drinks occasionally; he went three months without having a drop of alcohol earlier in the year.

But the decline in booze consumption isn’t only about people becoming more work-driven. There have never been more alternate ways to be entertained than resorting to the bottle. The rise of digital TV, BBC iPlayer and Netflix means most people means that most people have almost limitless choice about what to watch.

Some social lives have also partly migrated online. In many ways this is an unfortunate development, but one upshot has been to reduce alcohol intake. “You don’t need to drink to hang out online,” says Dr James Nicholls, the author of The Politics of Alcohol who now works for Alcohol Concern. 

The sheer cost of boozing also puts people off. Although minimum pricing on booze has not been introduced, a series of taxes have made alcohol more expensive, while a ban on below-cost selling was introduced last year. Across the 28 countries of the EU, only Ireland has higher alcohol and tobacco prices than the UK today; in 1998 prices in the UK were only the fourth most expensive in the EU.

Immigration has also contributed to weaning Britain off booze. The decrease in alcohol consumption “is linked partly to demographic trends: the fall is largest in areas with greater ethnic diversity,” Nicholls says. A third of adults in London, where 37 per cent of the population is foreign born, do not drink alcohol at all, easily the highest of any region in Britain.

The alcohol industry is nothing if not resilient. “By lobbying for lower duty rates, ramping up their marketing and developing new products the big producers are doing their best to make sure the last ten years turn out to be a blip rather than a long term change in culture,” Nicholls says.

But whatever alcohol companies do to fight back against the declining popularity of booze, deep changes in British culture have made booze less attractive. Forget the horrific tales of drunken escapades from Magaluf to the Bullingdon Club. The real story is of the strange death of boozy Britain. 

Tim Wigmore is a contributing writer to the New Statesman and the author of Second XI: Cricket In Its Outposts.