George Osborne during a visit to the Royal Mint on March 25, 2014 in Llantrisant, Wales. Photograph: Getty Images.
Show Hide image

Osborne's U-turn on RBS bonuses has undermined his credibility

After voting against a cap as recently as January, the Chancellor has taken fright. 

For months, George Osborne has been battling in the European court to prevent the introduction of an EU cap on bank bonuses. But today at least, he's done the reverse. Under the new rules, banks are required to limit bonuses to 100 per cent of basic salaries unless they win shareholder approval for a cap of 200 per cent. It was a loophole that RBS intended to exploit in its pay-outs to executives. But rather than allowing the bank to do so (as its opposition to the cap would suggest), the government, as RBS's majority shareholder, has vetoed the plan. 

Abandoning the pretence that UK Financial Investments, which controls the state's 81 per cent share, acts independently of ministers, a Treasury spokesman said: "Under the new strategy set out by RBS's chief executive, Ross McEwan, RBS is heading in the right direction, but it has not yet completed its restructuring and remains a majority publicly owned bank. So an increase to the bonus cap cannot be justified and the government made clear it would not have supported such a proposal. The government therefore agrees that retaining the cap at the default ratio of 1:1 and RBS's proposed pay policy is appropriate."

In other words, far from opposing the EU cap, Osborne has acted entirely in accordance with its principles. It is a double standard that Labour has been quick to pounce on, noting that ministers voted against the party's motion to impose a minimum cap on RBS just a few months ago. Shadow Treasury minister Cathy Jamieson said:  

George Osborne is in a terrible muddle over bankers' bonuses. He is spending taxpayer's money on a legal fight in Brussels against the bonus cap and yet imposing the minimum cap at RBS.

The Government has bowed to pressure on RBS and finally admitted that bonuses of two times salary would be unacceptable at what remains a Bank in Government ownership. They voted against Labour's motion to impose the minimum cap at RBS in January, but have now been forced to reverse their position.

But confusingly at the same time the Chancellor is supporting higher bonuses in Lloyds Bank and elsewhere.

People who are facing a cost-of-living crisis are rightly angry about excessive rewards for failure in banking over recent years. The Chancellor should accept the logic of today's announcement and drop his legal action to block the bonus cap.

The Treasury has sought to justify the inconsistency by arguing that the large taxpayer stake in RBS means bonuses must be restrained. A Treasury spokesman said of the differing treatment of Lloyds and RBS: "It [Lloyds] is majority private-sector owned and the government's shareholding in the bank is now down to less than a quarter. Reflecting these different circumstances, the government will use its shareholder stake to support setting the bonus cap at the maximum allowable ratio of 2:1, in line with all other majority privately owned banks." 

But as so often in the case of Osborne, this decision has more to do with politics than policy. Ministers oppose a bonus cap on the grounds 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 all of these objections apply in the case of RBS. The bank responded to the government's veto by announcing that its new CEO Ross McEwan would receive an extra £1m a year in "allowances", doubling his salary. 

The reality is that the political cost of allowing the 81 per cent-taxpayer owned RBS to pay full bonuses was simply too high for Osborne to bear. Labour would have leapt on the move as further evidence of the Tories "standing up for the wrong people" and defending the super-rich. But by choosing political opportunism over intellectual consistency, Osborne has undermined his credibility with the free-market right. 

P.S. Then again, the Chancellor has never been one for consistency. Back in 2009, he declared: "It is totally unacceptable for bank bonuses to be paid on the back of taxpayer guarantees. It must stop." 

George Eaton is political editor of the New Statesman.

Photo: Getty Images
Show Hide image

The Fire Brigades Union reaffiliates to Labour - what does it mean?

Any union rejoining Labour will be welcomed by most in the party - but the impact on the party's internal politics will be smaller than you think.

The Fire Brigades Union (FBU) has voted to reaffiliate to the Labour party, in what is seen as a boost to Jeremy Corbyn. What does it mean for Labour’s internal politics?

Firstly, technically, the FBU has never affliated before as they are notionally part of the civil service - however, following the firefighters' strike in 2004, they decisively broke with Labour.

The main impact will be felt on the floor of Labour party conference. Although the FBU’s membership – at around 38,000 – is too small to have a material effect on the outcome of votes themselves, it will change the tenor of the motions put before party conference.

The FBU’s leadership is not only to the left of most unions in the Trades Union Congress (TUC), it is more inclined to bring motions relating to foreign affairs than other unions with similar politics (it is more internationalist in focus than, say, the PCS, another union that may affiliate due to Corbyn’s leadership). Motions on Israel/Palestine, the nuclear deterrent, and other issues, will find more support from FBU delegates than it has from other affiliated trade unions.

In terms of the balance of power between the affiliated unions themselves, the FBU’s re-entry into Labour politics is unlikely to be much of a gamechanger. Trade union positions, elected by trade union delegates at conference, are unlikely to be moved leftwards by the reaffiliation of the FBU. Unite, the GMB, Unison and Usdaw are all large enough to all-but-guarantee themselves a seat around the NEC. Community, a small centrist union, has already lost its place on the NEC in favour of the bakers’ union, which is more aligned to Tom Watson than Jeremy Corbyn.

Matt Wrack, the FBU’s General Secretary, will be a genuine ally to Corbyn and John McDonnell. Len McCluskey and Dave Prentis were both bounced into endorsing Corbyn by their executives and did so less than wholeheartedly. Tim Roache, the newly-elected General Secretary of the GMB, has publicly supported Corbyn but is seen as a more moderate voice at the TUC. Only Dave Ward of the Communication Workers’ Union, who lent staff and resources to both Corbyn’s campaign team and to the parliamentary staff of Corbyn and McDonnell, is truly on side.

The impact of reaffiliation may be felt more keenly in local parties. The FBU’s membership looks small in real terms compared Unite and Unison have memberships of over a million, while the GMB and Usdaw are around the half-a-million mark, but is much more impressive when you consider that there are just 48,000 firefighters in Britain. This may make them more likely to participate in internal elections than other affiliated trade unionists, just 60,000 of whom voted in the Labour leadership election in 2015. However, it is worth noting that it is statistically unlikely most firefighters are Corbynites - those that are will mostly have already joined themselves. The affiliation, while a morale boost for many in the Labour party, is unlikely to prove as significant to the direction of the party as the outcome of Unison’s general secretary election or the struggle for power at the top of Unite in 2018. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.