View all newsletters
Sign up to our newsletters

Support 110 years of independent journalism.

  1. Business
  2. Economics
6 March 2013

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.

By Ben Fox

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
Select and enter your email address Your weekly guide to the best writing on ideas, politics, books and culture every Saturday. The best way to sign up for The Saturday Read is via saturdayread.substack.com The New Statesman's quick and essential guide to the news and politics of the day. The best way to sign up for Morning Call is via morningcall.substack.com Our Thursday ideas newsletter, delving into philosophy, criticism, and intellectual history. The best way to sign up for The Salvo is via thesalvo.substack.com Stay up to date with NS events, subscription offers & updates. Weekly analysis of the shift to a new economy from the New Statesman's Spotlight on Policy team. The best way to sign up for The Green Transition is via spotlightonpolicy.substack.com
  • Administration / Office
  • Arts and Culture
  • Board Member
  • Business / Corporate Services
  • Client / Customer Services
  • Communications
  • Construction, Works, Engineering
  • Education, Curriculum and Teaching
  • Environment, Conservation and NRM
  • Facility / Grounds Management and Maintenance
  • Finance Management
  • Health - Medical and Nursing Management
  • HR, Training and Organisational Development
  • Information and Communications Technology
  • Information Services, Statistics, Records, Archives
  • Infrastructure Management - Transport, Utilities
  • Legal Officers and Practitioners
  • Librarians and Library Management
  • Management
  • Marketing
  • OH&S, Risk Management
  • Operations Management
  • Planning, Policy, Strategy
  • Printing, Design, Publishing, Web
  • Projects, Programs and Advisors
  • Property, Assets and Fleet Management
  • Public Relations and Media
  • Purchasing and Procurement
  • Quality Management
  • Science and Technical Research and Development
  • Security and Law Enforcement
  • Service Delivery
  • Sport and Recreation
  • Travel, Accommodation, Tourism
  • Wellbeing, Community / Social Services
Visit our privacy Policy for more information about our services, how New Statesman Media Group may use, process and share your personal data, including information on your rights in respect of your personal data and how you can unsubscribe from future marketing communications.
THANK YOU

Content from our partners
The promise of prevention
How Labour hopes to make the UK a leader in green energy
Is now the time to rethink health and care for older people? With Age UK

Select and enter your email address Your weekly guide to the best writing on ideas, politics, books and culture every Saturday. The best way to sign up for The Saturday Read is via saturdayread.substack.com The New Statesman's quick and essential guide to the news and politics of the day. The best way to sign up for Morning Call is via morningcall.substack.com Our Thursday ideas newsletter, delving into philosophy, criticism, and intellectual history. The best way to sign up for The Salvo is via thesalvo.substack.com Stay up to date with NS events, subscription offers & updates. Weekly analysis of the shift to a new economy from the New Statesman's Spotlight on Policy team. The best way to sign up for The Green Transition is via spotlightonpolicy.substack.com
  • Administration / Office
  • Arts and Culture
  • Board Member
  • Business / Corporate Services
  • Client / Customer Services
  • Communications
  • Construction, Works, Engineering
  • Education, Curriculum and Teaching
  • Environment, Conservation and NRM
  • Facility / Grounds Management and Maintenance
  • Finance Management
  • Health - Medical and Nursing Management
  • HR, Training and Organisational Development
  • Information and Communications Technology
  • Information Services, Statistics, Records, Archives
  • Infrastructure Management - Transport, Utilities
  • Legal Officers and Practitioners
  • Librarians and Library Management
  • Management
  • Marketing
  • OH&S, Risk Management
  • Operations Management
  • Planning, Policy, Strategy
  • Printing, Design, Publishing, Web
  • Projects, Programs and Advisors
  • Property, Assets and Fleet Management
  • Public Relations and Media
  • Purchasing and Procurement
  • Quality Management
  • Science and Technical Research and Development
  • Security and Law Enforcement
  • Service Delivery
  • Sport and Recreation
  • Travel, Accommodation, Tourism
  • Wellbeing, Community / Social Services
Visit our privacy Policy for more information about our services, how New Statesman Media Group may use, process and share your personal data, including information on your rights in respect of your personal data and how you can unsubscribe from future marketing communications.
THANK YOU