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.

Photo: Getty
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Can Philip Hammond save the Conservatives from public anger at their DUP deal?

The Chancellor has the wriggle room to get close to the DUP's spending increase – but emotion matters more than facts in politics.

The magic money tree exists, and it is growing in Northern Ireland. That’s the attack line that Labour will throw at Theresa May in the wake of her £1bn deal with the DUP to keep her party in office.

It’s worth noting that while £1bn is a big deal in terms of Northern Ireland’s budget – just a touch under £10bn in 2016/17 – as far as the total expenditure of the British government goes, it’s peanuts.

The British government spent £778bn last year – we’re talking about spending an amount of money in Northern Ireland over the course of two years that the NHS loses in pen theft over the course of one in England. To match the increase in relative terms, you’d be looking at a £35bn increase in spending.

But, of course, political arguments are about gut instinct rather than actual numbers. The perception that the streets of Antrim are being paved by gold while the public realm in England, Scotland and Wales falls into disrepair is a real danger to the Conservatives.

But the good news for them is that last year Philip Hammond tweaked his targets to give himself greater headroom in case of a Brexit shock. Now the Tories have experienced a shock of a different kind – a Corbyn shock. That shock was partly due to the Labour leader’s good campaign and May’s bad campaign, but it was also powered by anger at cuts to schools and anger among NHS workers at Jeremy Hunt’s stewardship of the NHS. Conservative MPs have already made it clear to May that the party must not go to the country again while defending cuts to school spending.

Hammond can get to slightly under that £35bn and still stick to his targets. That will mean that the DUP still get to rave about their higher-than-average increase, while avoiding another election in which cuts to schools are front-and-centre. But whether that deprives Labour of their “cuts for you, but not for them” attack line is another question entirely. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to domestic and global politics.

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