From the TUC

George Osborne on bonuses

26 Oct 2009, by in Economics, Politics

George Osborne has called for a cap on bonuses in retail banks of £2,000 with any balance paid in shares that have to be held for at least three years. The Evening Standard has a good round up of the reaction, which seems universally hostile.

Not surprisingly those who get bonuses are not exactly thrilled – and there are the usual claims that people will go overseas – but the doubts go wider. One obvious problem is that the real bonus culture is in investment banking. Labour has suggested that this shows Osborne’s real friends are in the more casino like parts of the City – and it is certainly true that some of those who have become super-rich are substantial party donors.

But please spare us from Liam Byrne’s claim, “We have already introduced the toughest bank remuneration policy in the world”

(One aside. Right down the food chain in retail banking, pretty average employees often get paid a bonus based on their sales. This is not a rewards policy that encourages responsible marketing. If this policy encouraged a shift to reducing the bonus and increasing the salary part of the reward package, this would be a positive, though possibly unintended. consequence.)

But what strikes me is the weak justification for the policy. Osborne says that this policy will free up £10 billion for loans (which means he has a higher estimate for this year’s bonus pool than others – most reports talk of £6 billion.)

When he was on the Today programme on Saturday morning (at 8:32), he was repeatedly pressed  on whether the worse than expected GDP figures meant his policy of big cuts to reduce the deficit would simply make the recession worse.

His answer was that this is a credit crunch, and that if only banks would lend more, then we would hasten recovery.

Now I am sure that there are perfectly good companies desperately in need of credit. Lenders are doubtless being too cautious and charging too much for their loans. But there has to be some consideration of whether the loan has a reasonable change of being repaid. An economy suffering from a double-dip recession is not the right backdrop to guarantee loan repayments.

So if the economics doesn’t stack up, it’s not part of a long term package of reforming the finance sector as Mervyn King and Lord Turner have both argued for in recent days, and it doesn’t even include the big bonuses then it looks more and more like something that if suggested by others would be dismissed as a gimmicky bit of politics of envy.

One Response to George Osborne on bonuses

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    Oct 27th 2009, 12:08 am

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