George Osborne fails the Common Sense test (again)
Dear George Osborne,
Having watched your performance at the Conservative Party conference, it was clear to me that you are keen to put electoral strategy and voter sentiment ahead of common sense. While this is not a bad idea in the run-up to an election, one does wonder if you’ll ever be able to turn it off. Your hollow remarks this morning about bankers’ bonuses are yet another example of sucking up to voters when there was no need to get involved at all.
In a speech to the City today, you will call for High Street banks to be stopped from paying cash bonuses of more than £2,000 and only be allowed to pay “significant” bonuses in shares, supposedly creating up to £20 billion of new lending for businesses and consumers. Last week, the Centre for Economics and Business Research said City bank bonuses would hit £6 billion this year, up from £4 billion in 2008, because of rising profits and less competition. You will urge the Treasury and FSA to ban big cash bonuses but would protect bonuses of less well paid staff who work in bank branches, hence allowing bonuses of less than £2,000. The measure, described as an “emergency” plan, would be temporary and would work alongside the new agreement signed by the banks and the FSA, and it would only apply to retail banks, which means investment banks would be exempt (although the proposed change would apply to the investment arms of banks that also lend to consumers). You are expected to say “emergency steps” need to be taken to support bank lending. ”The cash that would have been paid out should be put onto banks’ balance sheets explicitly to support new lending. This should be a condition of continuing to receive taxpayer guarantees and liquidity support. I am not insensitive to the need of Britain’s banks to remain competitive and retain their most talented staff.”
Right, first things first. The announcement made by Lord Turner at the FSA last week that big bonuses will be banned was backed up with a grand total of no substance whatsoever. Lord Turner said that if banks pay big bonuses then he has several ‘levers’ at his disposal to crack down on them, but unfortunately he didn’t specify what any of these levers were – presumably because he hadn’t thought that far ahead. Now we have you calling for a ban on big bonuses, and the best you can muster is asking the banks really really nicely to pay bonuses in shares instead of cash. The Treasury has criticised your demands as posturing and quite frankly I agree with them 100%. If someone has generated millions of pounds for their employers, why should they only get £2,000 in cash? Why not £5,000 or £10,000? Just plucking a figure out of the air as if you are some kind of moral arbiter for the financial sector is just another example of back-of-the-envelope calculations that got you into so much trouble over the raising of the retirement age when you got your sums spectacularly wrong. You are assuming that if cash bonuses were banned, banks would simply hand out bonuses in shares and start ramping up their lending, which to my mind is absurd as banks are perfectly capable of finding other methods of renumeration.
I read in the papers last week that despite almost £200 billion of quantitative easing, the money supply in the economy has risen by just 0.2% – yes, 0.2%. Why? Because the banks are busy repairing their damaged finances rather than shedding tears at how many businesses and homes are not getting the support that they need. Will you please stop engaging in this ‘Who can appear tougher on bankers’ bonuses?’ charade while sucking up to Guardian readers and ask yourself whether anything that you say demonstrates common sense and is likely to work in reality. The sad truth is that I don’t even think you bother with the ‘common sense’ test anymore as political posturing, safe in the knowledge that you’ll never have to implement any of this stuff, is the only way that you know how.
Yours sincerely,
A.Tory
Witanagemot Blogs
“Will you please stop engaging in this ‘Who can appear tougher on bankers’ bonuses?’ charade while sucking up to Guardian readers…”
He can’t. Guardian readers are the Tories new natural voters. Conservatives need not apply…
Anyone with common sense need not apply, it seems.
I’d like to know how Osborne plans to fill the tax hole left behind, after all those large bonuses attract taxes, and the sudden drop will have to made up somewhere (I suspect a VAT increase).
Add to this the UK is overly reliant on the financial sector, as it makes up a hefty chunk of GDP, and making bankers and the like feel distinctly unwelcome in the UK is going to have a massive impact on the nations finances.
I had decided that the Tories couldn’t be any worse than Labour, comments like Osbornes are chipping away at that idea…
And many thanks for adding me to your blogroll!
Ob, that’s my point – this wasn’t even a remotely rational economic decision, it was purely strategic. My concern is that Osborne simply doesn’t know how to make economic decisions anymore!
You know I don’t vote Tory LfaT, because I have a choice here in Scotland, but I have voted for them when outwith Scotland.
Osborne comes over as trying far too hard. Whether he has a grip on global economics I’m not sure, but his demeanor and tense delivery of his comments say no to me.
In my view, bonuses should be limited to a maximum percentage of the employee’s basic salary. Too many companies, in their annual reports, show relatively low salaries for their top personnel and have some complicated obscure formula for determining bonuses which no ordinary shareholder can understand and produce bonus figures that are far in excess of their basic salary. Limiting bonuses to say 10% of salary would make sense as would linking it in some way to the dividend payable to shareholders, so as the Tories once said, we all share in the proceeds of growth.
Subrosa, Osborne made a wonderful comment to the City a little while ago when he announced that he spends at least 40% of his time on economics. He thought this was awfully impressive for a Shadow Chancellor but, unfortunately, those working in the City were absolutely horrified.
Brian, I don’t have any problem with bankers being paid ridiculous amounts of money, but I do have a problem with them getting paid ridiculous amounts of money while putting my savings and people’s mortgages and livelihoods on the line.
I know plenty of bankers who get £500,000 – £1,000,000 bonuses. Much of that is paid in shares which cannot be sold for 3 – 10 years. Bankers borrow against the shares from , erm , the bank that gave them the shares. How do you deal with that George?
Last years paltry £100k bonuses that made bankers weep, also came with extra sweetners in the borrow against future earnings.
I don’t know what this years bonuses will be but they all looked pretty glum last week at a bankers bash.
Indeed. Banks will reward their staff and any politician who thinks that he can genuinely disrupt this process is a fool.
Ah therein lies the answer LfaT. Anyone with common sense knows you need to spend 90% of your time on a subject if you want to even begin to understand it.
Silly boy he is and he behaves rather like a wee laddie practising for when he grows up.
90%?!!!
approx 25% asleep, 5% eating & drinking, 25% relaxing and/or home /leisure time…not much left after 40% on economics. It’s only mugs like me that have to spend more than 50% of my time on the same subject to earn a crust.
[...] Letters From A Tory is not too impressed with George Osborne [...]
Spans, I have a feeling Osborne meant working time nothing more.
I think Osborne is [almost] right on the money. One problem with paying all of the bonuses in shares is that the bankers won’t have any cash to pay the taxes due, but for so long as the tax payer/ government is an involuntary shareholder in a bank, I have no problem with the employees being required to take a substantial portion of their bonus either in the form of new shares or in the form of shares bought back from the government at a price that recompenses the tax payer with interest.
@subrosa –
OK subrosa, I understand there is always that possibility and IF he did mean that then he is (a)stupid for saying it and (b) not doing his job!
Cameron also fails the common sense test according to Andrew Rawnsley.
http://www.guardian.co.uk/commentisfree/2009/oct/11/andrew-rawnsley-conservative-conference-election
Reform of the state is not so much about the nominal size of the state, but getting it to work smarter so that what it does do isn’t wasted effort.