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.