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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Forget the progressive alliance - it was the voters wot won it in Richmond

The Labour candidate on how voters have acted tactically for decades.

The Richmond Park by-election is both a triumph and a setback for the concept of an anti-Tory progressive alliance. As the Labour candidate, I was bombarded with emails and tweets saying I ought to stand down to prevent Zac Goldsmith being re-elected long after it was technically impossible for me to do so even if I had wanted to. I was harangued at a meeting organised by Compass, at which I found myself the lonely voice defending Labour's decision to put up a candidate.

I was slightly taken aback by the anger of some of those proposing the idea, but I did not stand for office expecting an easy ride. I told the meeting that while I liked the concept of a progressive alliance, I did not think that should mean standing down in favour of a completely unknown and inexperienced Lib Dem candidate, who had been selected without any reference to other parties. 

The Greens, relative newbies to the political scene, had less to lose than Labour, which still wants to be a national political party. Consequently, they told people to support the Lib Dems. This all passed off smoothly for a while, but when Caroline Lucas, the co-leader of the Greens came to Richmond to actively support the Lib Dems, it was more than some of her local party members could stomach. 

They wrote to the Guardian expressing support for my campaign, pointing out that I had a far better, long-established reputation as an environmentalist than the Lib Dem candidate. While clearly that ultimately did little to boost my vote, this episode highlighted one of the key problems about creating a progressive alliance. Keeping the various wings of the Labour party together, especially given the undisciplined approach of the leader who, as a backbencher, voted 428 times during the 13 years of Labour government in the 1990s and 2000s, is hard enough. Then consider trying to unite the left of the Greens with the right of the Lib Dems. That is not to include various others in this rainbow coalition such as nationalists and ultra-left groups. Herding cats seems easy by contrast.

In the end, however, the irony was that the people decided all by themselves. They left Labour in droves to vote out Goldsmith and express their opposition to Brexit. It was very noticeable in the last few days on the doorstep that the Lib Dems' relentless campaign was paying dividends. All credit to them for playing a good hand well. But it will not be easy for them to repeat this trick in other constituencies. 

The Lib Dems, therefore, did not need the progressive alliance. Labour supporters in Richmond have been voting tactically for decades. I lost count of the number of people who said to me that their instincts and values were to support Labour, but "around here it is a wasted vote". The most revealing statistic is that in the mayoral campaign, Sadiq Khan received 24 per cent of first preferences while Caroline Pidgeon, the Lib Dem candidate got just 7 per cent. If one discounts the fact that Khan was higher profile and had some personal support, this does still suggest that Labour’s real support in the area is around 20 per cent, enough to give the party second place in a good year and certainly to get some councillors elected.

There is also a complicating factor in the election process. I campaigned strongly on opposing Brexit and attacked Goldsmith over his support for welfare cuts, the bedroom tax and his outrageous mayoral campaign. By raising those issues, I helped undermine his support. If I had not stood for election, then perhaps a few voters may have kept on supporting him. One of my concerns about the idea of a progressive alliance is that it involves treating voters with disdain. The implication is that they are not clever enough to make up their mind or to understand the restrictions of the first past the post system. They are given less choice and less information, in a way that seems patronising, and smacks of the worst aspects of old-fashioned Fabianism.

Supporters of the progressive alliance will, therefore, have to overcome all these objections - in addition to practical ones such as negotiating the agreement of all the parties - before being able to implement the concept. 

Christian Wolmar is an award winning writer and broadcaster specialising in transport. He was shortlisted as a Labour mayoral candidate in the 2016 London election, and stood as Labour's candidate in the Richmond Park by-election in December 2016.