Socialist Worker

How the Tories make us pay for the bankers’ greed

George Osborne wants to protect British banking from reform and preserve a system that’s stacked against ordinary people, writes Sadie Robinson

Issue No. 2345

European rulers are clamping down on bank bonuses—or so they would have us believe.

Finance ministers across the European Union backed a plan to limit bonuses to a year’s salary earlier this month—or two years’ salary if most shareholders agree.

Britain’s Tory chancellor George Osborne was the only one to oppose the move. He is determined to keep the City of London as a major international trading centre. 

This means trying to protect the bankers and bosses. 

Some reports described the cap as “the toughest clampdown on bonuses anywhere in the world”.

But bosses are already preparing to raise bankers’ pay to “compensate” for the cap.

Banking supervisor Andrew Bailey has estimated that the cap will push up fixed salary costs at Britain’s banks by £500 million a year.

Bailey disgracefully said 1,300 bankers will get an average pay rise of £385,000.

He said the cap had been driven by “popular anti-bank sentiment”. But he added, “It will not have the effect of reducing overall renumeration”.

Many bankers agree. “There is great confidence that banks will find ways around this,” scoffed one bank director following the EU vote on the bonus cap. 

“They always do. I hear people talk about setting up their own company and contracting themselves out to the bank.”

It’s no wonder they are confident. Despite overwhelming public hostility, banks have done very well during the crisis.

The government’s quantitative easing strategy has seen the Bank of England hand around £375 billion to the banks so far. 

They don’t literally print money. Instead the Bank of England buys assets, usually government bonds, from banks and insurance firms. 

The Tories said this would encourage banks to lend, and so stimulate the economy.

This didn’t happen. Bank of England figures last month showed that net lending—the amount banks lend compared to money customers repay—was minus £1.5 billion.

Instead banks used the money to bet on commodity prices, push their values up and make yet more money.

This hasn’t helped ordinary people—it has helped the banks.

The Tories, like many governments, are under pressure to appear to be “getting tough”. But the bankers are their mates and donors—so they don’t want to impose measures that would hit profits.

As Osborne put it, “Any bunch of politicians can bash the banks, chase the headlines, court the populist streak. But what good would that do our country?”

Their measures will have little impact on banks. And they leave the murky “shadow banking” sector—hedge funds, private investment firms, and money markets—completely untouched.

And if banks can’t get around the bonus cap, they can always simply ignore it. 

One hedge fund manager. said, “If you tax people for writing with their left hand, they’ll write with their right hand.”

Huge bonuses for bankers

Barclays paid 428 of its staff more than £1 million in bonuses last year. 

Five received more than £5 million.

Bailed out RBS paid 95 employees bonuses of more than £1 million. 

RBS is 81 percent owned by the government.

Both banks have been fined for fixing the Libor interest rate.

HSBC, which was recently fined for money laundering, paid out more than £5 billion in bonuses. 

The highest earner at the bank grabbed £7 million—made up of a £650,000 salary and £6.35 million bonus.

Banking bonuses have soared. Between April 2011 and March 2012 some £13 billion in bonuses went to bankers and other finance staff according to the Office for National Statistics. 

That compares to £7 billion in 2001-02.

A full time banker in the City of London grabs £106,000 a year on average, including bonuses. 

The average finance worker gets a £12,000 bonus while public sector workers get an average bonus of just £100

Regulation won’t stop crisis

George Osborne’s Banking Reform Bill instructs banks to ringfence “risky” investment banking from high street operations. 

He argues that this kind of regulation can ward off future crises.

In reality crisis is rooted in the system—and no amount of regulation can do away with it.

Banks and other institutions provided cheap credit to poor people to compensate for low wages. Ultimately people were unable to repay their debts. These debts had been repackaged, sold on, and spread through the system.

Banks didn’t know how many losses they would suffer and started to worry about being stuck with bad debt. 

This led to the “credit crunch” of 2008.

The reliance on cheap credit flows from a deeper problem. The rate of profit that bosses make tends to fall over time. They have to invest more in order to get the same return.

They try and drive down wages to shore up their profits. The growth of cheap credit was a response to this.

The Tories want us to believe that regulation can stop crisis. They don’t want people to see that the problem lies with the system itself.

Osborne blocked report

Top banker Sir David Walker recommended that some banks and building societies should provide a detailed breakdown of pay and bonuses in a 2009 report.

Osborne rejected the idea. In 2012 half of Barclays staff earn less than £25,000 a year. But most banks talk in terms of “renumeration per employee”. 

They know we hate them

 bosses aren’t really worried about bankers getting bonuses. They are worried about ordinary people being angry about bonuses.

Simon Walker is head of the Institute of Directors. “As you can imagine, given my job, I’m not a rabid anti-capitalist,” he said. 

“But even I believe that this state of affairs is unacceptable.”

Tories backed by bankers

 The Tories got over 40 percent of their funding from bankers, financiers and the City last year. 

The biggest individual donor in the City was Michael Farmer—founder of hedge fund RK Capital Management and co-treasurer of the Tory party. He gave £1.3 million.

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Background Check
Thu 21 Mar 2013, 15:42 GMT
Issue No. 2345
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