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Sunday, March 03, 2013

Restricting Executive Pay

Those Tories who took to the airwaves to condemn a new European Union law to cap bankers' bonuses sounded unconvincing at the time and look even sillier now, with Switzerland on the verge of voting in favour of the measure.

The problem faced by the Chancellor of the Exchequer in his attempt to modify the proposals is that he is being torpedoed by the bankers themselves, who have a knack of demonstrating a stunning lack of tact and self-awareness at the most inappropriate time.

This time it is the Royal Bank of Scotland, which is mostly state-owned, and who handed out £600m in bonuses last week despite making a loss of more than £5bn in 2012. Even the RBS chairman, Sir Philip Hampton, conceded that the bonuses were "tough to swallow" for a public that is seeing real incomes fall, benefits cut and taxes rise.  And yet they still did it!  

The argument being put about by Tories such as Boris Johnson is that the City of London is a major driver of the UK economy and that any restraint on bonuses will send all the talent scurrying off to Switzerland, New York and the Far East. Where does that argument stand now that Switzerland looks like toughening its own rules substantially?  

It is time we made a stand. At a time of austerity there is no excuse for allowing the excesses of the banking industry to continue. After all it is not as if they are lending to small businesses or helping to kick-start the manufacturing sector. Perhaps we should be more subtle and link bonuses to that sort of activity rather than the more esoteric bond markets. At least that would concentrate minds a bit more on what really matters.
If the Swiss referendum passes, it will be a test of the theory that if you are not nice to big company execs., they will take themselves and their companies abroad. Johnson & Osborne should be welcoming a flight to the UK of rich Swiss if they really believe that.

On the subject of bonuses, I see that Liam Byrne is still claiming that Labour's bonus tax will raise £1.3bn. Judging by the reductions in bonus figures published so far, it looks as if the tax will have to be levied at well over 50% to produce that sort of return.
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