Labour pins Osborne down on bank bonuses

The party challenges the Chancellor to veto any move by RBS to double the bank bonus cap under new EU rules.

It's bonus season again in the City and Labour has spied another opportunity to inflict embarrassment on the coalition. Under new rules passed by the EU, bonuses must be no larger than bankers' basic salaries. But a loophole means that they can be up to twice as large provided that banks win shareholder approval. In the case of RBS, which is still 81%-owned by the taxpayer, that means the government. 

While the new EU cap, which George Osborne is challenging through the European court, won't apply until next year's bonus round, Labour is demanding that the Chancellor pre-emptively vow to block any request by RBS to exploit the loophole. Shadow chief secretary to the Treasury Chris Leslie, who has tabled a Commons motion on the subject for today, said last night: "At a time when families face a cost-of-living crisis and bank lending to business is falling, it cannot be right for George Osborne to approve a doubling of the bank bonus cap. It shouldn’t have taken the EU to act to rein in excessive bonuses, but there has been no action from the Chancellor here in Britain.

"As the majority shareholder, the government should reject any request from RBS to increase the cap. We will put this to a vote in the House of Commons as part of our opposition day debate on the Government’s wider failures on banking. The case for repeating Labour’s tax on bank bonuses, to fund a compulsory jobs programme for young people, is getting stronger by the day."

Here's the full text of Labour's Opposition Day motion: "That this House believes that Government reforms have failed to deliver a competitive banking system which serves the interests of consumers or the needs of businesses and the British economy; is concerned that customers have limited choice and low levels of trust and confidence in the banking market; is disappointed that recent legislation has fallen short of the recommendations of the Independent Commission on Banking which called for action to diversify the sector and ensure that major new banking service providers are created; believes that banker remuneration remains unacceptably high and regrets the fact that it has taken the EU to act to rein in excessive bonuses in Britain in the absence of domestic action but believes the government as a majority shareholder in RBS should not approve any request to increase the cap; and calls on Ministers to prevent a return to business-as-usual in the banking sector which continues to require real reform and competition so that the UK can earn its way out of the cost-of-living crisis."

The official line from RBS is that "no decisions have been made" but the likelihood is that chief executive Ross McEwan, who believes high levels of remuneration are vital to maintain the bank's competitiveness, will seek the highest bonuses possible at RBS's annual meeting later this year. In response, the Treasury said: "Our normal principles apply. There needs to be restraint. Bonuses need to be significantly down on where they were at the time of the crisis and in the last parliament."

But this only prompts the question of why Osborne is resisting any official cap on bonuses. The answer from ministers is that as Andrew Bailey, the head of the Prudential Regulation Authority, has said, any limit will "just increase base pay, reduce claw back and undermine financial stability". But Labour will no doubt remind Osborne of his declaration back in 2009 that "It is totally unacceptable for bank bonuses to be paid on the back of taxpayer guarantees. It must stop." The Chancellor's volte-face has handed the party another chance to accuse him of "standing up for the wrong people. 

Meanwhile, as Newsnight reported last night, Ed Miliband is preparing to announce new proposals for banking reform in his speech on the economy on Friday. While Labour sources are distancing themselves from the idea of a 25% cap on market share, Miliband's intent is to end the dominance of the "big five" (RBS, Barclays, Lloyds, HSBC and Santander) and to make it easier for smaller players to enter the market, potentially by forcing larger banks to sell some of their branches. It's a good example of what the Labour leader meant when he spoke in his New Year message of the need to make "big changes in our economy". The aim is to show that he has a plan to deliver a permanent improvement in living standards, rather than merely a temporary one, (by improving lending to small businesses) and an answer to the "too big to fail" problem. 

On the Today programmme this morning, Chris Leslie spoke of how bank customers feel "there is no point in switching" because "they're all the same" and denounced the government for "consistently falling short of rising to the challenge of what needs to be done". He also described the "high rolling bonus culture" as part of "the old economic construct", a sign of how shadow ministers are now echoing Miliband's long-standing call for a transformed capitalism. 

George Osborne speaks at the Conservative conference in Manchester last year. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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Erdogan’s purge was too big and too organised to be a mere reaction to the failed coup

There is a specific word for the melancholy of Istanbul. The city is suffering a mighty bout of something like hüzün at the moment. 

Even at the worst of times Istanbul is a beautiful city, and the Bosphorus is a remarkable stretch of sea. Turks get very irritated if you call it a river. They are right. The Bosphorus has a life and energy that a river could never equal. Spend five minutes watching the Bosphorus and you can understand why Orhan Pamuk, Turkey’s Nobel laureate for literature, became fixated by it as he grew up, tracking the movements of the ocean-going vessels, the warships and the freighters as they steamed between Asia and Europe.

I went to an Ottoman palace on the Asian side of the Bosphorus, waiting to interview the former prime minister Ahmet Davu­toglu. He was pushed out of office two months ago by President Recep Tayyip Erdogan when he appeared to be too wedded to the clauses in the Turkish constitution which say that the prime minister is the head of government and the president is a ceremonial head of state. Erdogan was happy with that when he was prime minister. But now he’s president, he wants to change the constitution. If Erdogan can win the vote in parliament he will, in effect, be rubber-stamping the reality he has created since he became president. In the days since the attempted coup, no one has had any doubt about who is the power in the land.

 

City of melancholy

The view from the Ottoman palace was magnificent. Beneath a luscious, pine-shaded garden an oil tanker plied its way towards the Black Sea. Small ferries dodged across the sea lanes. It was not, I hasten to add, Davutoglu’s private residence. It had just been borrowed, for the backdrop. But it reminded a Turkish friend of something she had heard once from the AKP, Erdogan’s ruling party: that they would not rest until they were living in the apartments with balconies and gardens overlooking the Bosphorus that had always been the preserve of the secular elite they wanted to replace.

Pamuk also writes about hüzün, the melancholy that afflicts the citizens of Istanbul. It comes, he says, from the city’s history and its decline, the foghorns on the Bosphorus, from tumbledown walls that have been ruins since the fall of the Byzantine empire, unemployed men in tea houses, covered women waiting for buses that never come, pelting rain and dark evenings: the city’s whole fabric and all the lives within it. “My starting point,” Pamuk wrote, “was the emotion that a child might feel while looking through a steamy window.”

Istanbul is suffering a mighty bout of something like hüzün at the moment. In Pamuk’s work the citizens of Istanbul take a perverse pride in hüzün. No one in Istanbul, or elsewhere in Turkey, can draw comfort from what is happening now. Erdogan’s opponents wonder what kind of future they can have in his Turkey. I think I sensed it, too, in the triumphalist crowds of Erdogan supporters that have been gathering day after day since the coup was defeated.

 

Down with the generals

Erdogan’s opponents are not downcast because the coup failed; a big reason why it did was that it had no public support. Turks know way too much about the authoritarian ways of military rule to want it back. The melancholy is because Erdogan is using the coup to entrench himself even more deeply in power. The purge looks too far-reaching, too organised and too big to have been a quick reaction to the attempt on his power. Instead it seems to be a plan that was waiting to be used.

Turkey is a deeply unhappy country. It is hard to imagine now, but when the Arab uprisings happened in 2011 it seemed to be a model for the Middle East. It had elections and an economy that worked and grew. When I asked Davutoglu around that time whether there would be a new Ottoman sphere of influence for the 21st century, he smiled modestly, denied any such ambition and went on to explain that the 2011 uprisings were the true succession to the Ottoman empire. A century of European, and then American, domination was ending. It had been a false start in Middle Eastern history. Now it was back on track. The people of the region were deciding their futures, and perhaps Turkey would have a role, almost like a big brother.

Turkey’s position – straddling east and west, facing Europe and Asia – is the key to its history and its future. It could be, should be, a rock of stability in a desperately un­stable part of the world. But it isn’t, and that is a problem for all of us.

 

Contagion of war

The coup did not come out of a clear sky. Turkey was in deep crisis before the attempt was made. Part of the problem has come from Erdogan’s divisive policies. He has led the AKP to successive election victories since it first won in 2002. But the policies of his governments have not been inclusive. As long as his supporters are happy, the president seems unconcerned about the resentment and opposition he is generating on the other side of politics.

Perhaps that was inevitable. His mission, as a political Islamist, was to change the country, to end the power of secular elites, including the army, which had been dominant since Mustafa Kemal Atatürk created modern Turkey after the collapse of the Ottoman empire. And there is also the influence of chaos and war in the Middle East. Turkey has borders with Iraq and Syria, and is deeply involved in their wars. The borders do not stop the contagion of violence. Hundreds of people have died in the past year in bomb attacks in Turkish cities, some carried out by the jihadists of so-called Islamic State, and some sent by Kurdish separatists working under the PKK.

It is a horrible mix. Erdogan might be able to deal with it better if he had used the attempted coup to try to unite Turkey. All the parliamentary parties condemned it. But instead, he has turned the power of the state against his opponents. More rough times lie ahead.

Jeremy Bowen is the BBC’s Middle East editor. He tweets @bowenbbc

This article first appeared in the 28 July 2016 issue of the New Statesman, Summer Double Issue