George Osborne is off to Canary Wharf this morning to make anti-Banker noises at the Reuters HQ. His speech will call for the successful to be penalised as an act of collective punishment for the mistakes of senior management. No word as to what punishment the Bank of England Governor and Chairman of the FSA will face, Guido suspects none.
The argument is that now the government is the owner of banks it should set the pay and conditions of staff to satisfy the democratic will. Shareholders are of course entitled to exercise control. However if Guido was a proprietary trader at RBS contractually promised 10% of the profits he wins for the firm, only to be told that the Chancellor wants to breach the contract and unilaterally cut the bonus, Guido would first call his lawyer. Secondly, Guido would start looking at renting office space in Dubai or another financial centre with a zero rate of income tax.
Bonuses are taxed, so next year half the £6 billion bonus pool could be lost to the exchequer. The successful traders who make profits for their firms help the banks re-build their balance sheets, why drive them overseas? Punishing successful City folk after the event is a displacement activity when they should be punishing those responsible for the crisis – central bankers, regulators and those few bankers who actually had direct responsibility for the crisis.
Bonuses are a form of deferred performance related pay, no profit, no bonus. The easiest way to clamp down on bonuses is to have a moribund economy…
UPDATE : Labour’s Lord Myners, who really ought to know better, is now (Thick of It style) pushing a rival plan this morning. Forcing investment banks to reduce their fees for capital raising. He seems to want to further erode bank profits. How are the banks expected to rebuild their balance sheets?