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

A protest in 2016. Getty
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Fewer teachers, more pupils and no more money. Schools are struggling

With grammars and universal school meals, both main parties have decided to answer policy questions no one is asking.

If you ask people in Britain what the ­biggest political issues are, schools don’t make the top five. Yet last week Labour set its first party political broadcast in a fictional classroom where a teacher described Jeremy Corbyn’s plans for schools’ future. Without a Labour government, the teacher opines, there will be no more libraries, or teachers, or school trips. Though the scenario is a flagrant breach of the law – teachers must remain politically impartial – education isn’t a bad place for Labour to start its campaign. Schools really are quite screwed.

Three things are hitting hard. Schools have less money, fewer people want to be teachers, and an avalanche of under-sevens is hitting the playgrounds and won’t stop for several more years.

How did we get here? In 2015 the Conservatives pledged to keep school funding at the same rate per pupil over the lifetime of the parliament. Yet while the money coming in has remained flat, schools have faced huge hikes in costs, particularly staffing. Big increases in mandatory pension contributions and National Insurance have taken their toll; so has the apprenticeship levy. The
Institute for Fiscal Studies estimates that all told, schools will have lost about 8 per cent of their budget by 2020. That’s £3bn of savings that must be found. Or, more bluntly, the starting salaries of 100,000 teachers.

It is worth remembering at this point how huge the schools sector is and how many people are affected. About half a million teachers work in the 20,000-plus state schools. A further 300,000 people work in allied professions. There are eight million children and an estimated 12 million parents. Lump in their grandparents, and it’s fair to say that about 20 million voters are affected by schools in one way or another.

The budget squeeze is leading many of these schools to drastic measures: firing teachers, increasing class sizes, cutting music from the curriculum, charging parents for their child’s place on a sports team, dropping transport provision, and so on. Begging letters to parents for donations have become commonplace; some have asked for contributions of up to £60 a month.

On top of money worries, teachers are abandoning the profession. In 2015, an additional 18,000 went to work in international schools – more than were trained at universities over the same year. They joined the 80,000 teachers already working in British schools abroad, attracted by higher pay and better working conditions.

Graduates are also snubbing teaching. With starting salaries increasing at less than 1 per cent a year since 2010, new teachers are now paid about 20 per cent less than the average graduate trainee. Changes to higher education are also such that trainees must now pay £9,000 in order to gain their teaching qualification through a university. The government has missed its target for teacher trainees for five years now, and there is no coherent plan for hitting it.

No money and no teachers is less of a problem if you are in a demographic dip. We had a bizarrely low birth rate at the turn of the century, so we currently have a historically small proportion of teens. Unfortunately, the generation just behind them, of seven-year-olds and under, is enormous. Why? Because the “baby echoers”, born in the 1970s to the baby boomers, had children a bit later than their parents. Add to that the children recently born to immigrants who arrived in their twenties when the European Union expanded in the early 2000s, and Britain is facing an El Niño of toddlers. By 2025 a million extra children will be in the school system than in 2010.

To keep on top of the boom the government has been creating schools like a Tasmanian devil playing Minecraft. But 175,000 more places will be needed in the next three years. That’s the equivalent of one new secondary school per week from now until 2020.

In fairness, the government and councils have put aside money for additional buildings, and roughly the same number of parents are getting their first-choice school as before. The free schools policy, which delivers new schools, has not always been well managed, but it is now more efficient and targeted. However, many more children combined with squeezed budgets and fewer teachers typically leads to bigger class sizes. Most classrooms were built to house 30 pupils. Exam results may not get worse, but no parent wants their child working on a makeshift desk improvised out of a windowsill.

Instead of addressing these challenges, both main parties have decided to answer policy questions no one is asking. Theresa May wants more grammar schools, ostensibly because they will give more choice to parents – though these are the only schools that pick pupils, as opposed to the other way around. And she says they will aid social mobility, though all the evidence (and I really do mean all) suggests the opposite.

Jeremy Corbyn, meanwhile, is offering free lunches to all seven-to-11-year-olds, which sounds worthy until you realise that children from low-income families already get free lunch, and that feeding every child a hot sit-down meal is virtually impossible, given the limited space and kitchen facilities in most schools. Plus, the evidence this £1bn policy would make any significant difference
to health or attainment is pretty sketchy. Labour has also sensibly talked about cash and promised to “fully fund” schools, but it isn’t clear what that means.

What’s missing so far from the Conservatives and Labour alike is a set of policies about teacher recruitment or place planning. The sector needs to know how schools will be built, and where the teachers will come from for the extra kids. In other words, the message to both sides is – must try harder.

Laura McInerney is the editor of Schools Week and a former teacher

Laura McInerney taught in East London for six years and is now studying on a Fulbright scholarship at the University of Missouri. She also works as Policy Partner at LKMCo.

This article first appeared in the 27 April 2017 issue of the New Statesman, Cool Britannia 20 Years On

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