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.

Photo: Getty
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Saudi Arabia is a brutal and extremist dictatorship – so why are we selling it arms?

With conflict in Yemen continuing, it’s clear that we’re failing to moderate the actions of “our despots”.

This year, during Pride week, I noticed something curious on top of the Ministry of Defence just off Whitehall. At the tip of the building’s flagpole hung the rainbow flag – a symbol of liberation for LGBTIQ people and, traditionally, a sign of defiance, too.

I was delighted to see it, and yet it also struck me as surprising that the governmental headquarters of our military would fly such a flag. Not only because of the forces’ history of homophobia, but more strikingly to me because of the closeness of our military establishment to regimes such as Saudi Arabia, where homosexuality is a sin punishable by jail, lashing and even death

That relationship has been under the spotlight recently. Ministers writhed and squirmed to avoid making public a report that’s widely expected to reveal that funding for extremism in Britain has come from Saudi Arabia. The pressure peaked last week, after a series of parliamentary questions I tabled, when survivors of 9/11 wrote to Theresa May asking her to make the report public. At the final PMQs of the parliamentary term last week, I again pressed May on the issue, but like so many prime ministers before her, she brushed aside my questioning on the link between British arms sales and the refusal to expose information that might embarrass the Riyadh regime. 

The British government’s cosy relationship with Riyadh and our habit of selling weapons to authoritarian regimes is “justified" in a number of ways. Firstly, ministers like to repeat familiar lines about protecting British industry, suggesting that the military industrial complex is central to our country’s economic success.

It is true to say that we make a lot of money from selling weapons to Saudi Arabia – indeed figures released over the weekend by the Campaign Against Arms Trade revealed that the government authorised exports including £263m-worth of combat aircraft components to the Saudi air force, and £4m of bombs and missiles in the six months from October 2016.

Though those numbers are high, arms exports is not a jobs-rich industry and only 0.2 per cent of the British workforce is actually employed in the sector. And let’s just be clear – there simply is no moral justification for employing people to build bombs which are likely to be used to slaughter civilians. 

Ministers also justify friendship and arms sales to dictators as part of a foreign policy strategy. They may be despots, but they are “our despots”. The truth, however, is that such deals simply aren’t necessary for a relationship of equals. As my colleague Baroness Jones said recently in the House of Lords:

"As a politician, I understand that we sometimes have to work with some very unpleasant people and we have to sit down with them and negotiate with them. We might loathe them, but we have to keep a dialogue going. However, we do not have to sell them arms. Saudi Arabia is a brutal dictatorship. It is one of the world’s worst Governments in terms of human rights abuses. We should not be selling it arms.”

With Saudi Arabia’s offensive against targets in Yemen continuing, and with UN experts saying the attacks are breaching international law, it’s clear that we’re failing to moderate the actions of "our despots".

The government’s intransigence on this issue – despite the overwhelming moral argument – is astonishing. But it appears that the tide may be turning. In a recent survey, a significant majority of the public backed a ban on arms sales to Saudi Arabia and just this weekend the Mayor of London denounced the arms fair planned in the capital later this year. When the government refused to make the terror funding report public, there was near-universal condemnation from the opposition parties. On this issue, like so many others, the Tories are increasingly isolated and potentially weak.

Read more: How did the High Court decide weapon sales to Saudi Arabia are lawful?

The arms industry exists at the nexus between our country’s industrial and foreign policies. To change course we need to accept a different direction in both policy areas. That’s why I believe that we should accompany the end of arms exports to repressive regimes with a 21st century industrial policy which turns jobs in the industry into employment for the future. Imagine if the expertise of those currently building components for Saudi weaponry was turned towards finding solutions for the greatest foreign policy challenge we face: climate change. 

The future of the British military industrial establishment’s iron grip over government is now in question, and the answers we find will define this country for a generation. Do we stamp our influence on the world by putting our arm around the head-choppers of Riyadh and elsewhere, or do we forge a genuinely independent foreign policy that projects peace around the world – and puts the safety of British people at its core?

Caroline Lucas is the MP for Brighton Pavilion.