George Osborne has set out his support for limits on banking pay. His remarks come as Compass set out detailed proposals to tackle banking sector excesses.
George Osborne has set out his support for limits on bankers’ pay. Speaking on the BBC’s Today programme he said, “The level of pay in the banking sector has got completely out of kilter with the rest of society.” His remarks come as the left-wing pressure group, Compass, set out detailed proposals to tackle the excesses in the banking sector.
Compass publishes a report, “Never Again,” which sets out six policies to “transfer risk from the state and taxpayers back on to the financial institutions”. The proposals including “a short term ceiling on total remuneration given as both cash and share options.” The paper calls for a low compensation ratio – the percentage of an institution’s net revenue allocated to staff pay – of around 15 per cent. They outline that 76 per cent support the policy and argue that:
“During the boom years investment banks set aside between 45% and 65% of their net revenue to pay staff before calculating profits or paying out dividends to shareholders. The latest round of payouts have had a compensation ratio of nearer 30-40% as banks try to convince politicians and the public that they can self-regulate. High staff costs leads to diminishing profits and dividends as well as lower capital reserves. It also puts huge pressure on less profitable institutions – for example the 2009 compensation ratio for UBS is 81.2% which is unaffordable in the long term.
Speaking on the Today programme, George Osborne said:
“The level of pay in the banking sector has got completely out of kilter with the rest of society. It is totally disproportaion to what doctors are paid, people working in industry are paid, teachers are paid, and the like. And we need to bring down pay across the sector – not just in one bank – across the sector. And thinks like a bank tax, international agreed, might help do that.”
This expanded a point made last night in his Mais Lecture. Osborne said:
But I also believe we should pursue international agreement for a levy on the banking system, similar to the levy on wholesale funding proposed by President Obama or the levy already implemented in Sweden, as well as for structural reforms to prevent retail banks with implicit taxpayer guarantees from engaging in the riskiest activities such as large scale proprietary trading.
In September, Gordon Brown jointly signed a letter with Angela Merkel and Nicolas Sarkozy calling for action on the “reprehensible practices” of the banking sector. The letter said:
“The variable remuneration including bonuses, should be kept at an appropriate level in relation to the fixed remuneration and must depend on the performance of the bank, the business unit and the individuals.”
Responding to Mr Osborne’s comments, Gavin Hayes told Left Foot Forward:
“If you can get international agreement, all well and good. But individual nations can take their own individual action. And Britain took a lead on the windfall tax and France also adopted it. Britain needs to take the lead on these issues.”
Compass have also called for the bankers’ bonus windfall tax to be made permanent and extended in scope to include hedge funds and private equity firms; for the introduction of the popular “Robin Hood” Financial Transaction Tax; the separation of retail and investment banks; and a high pay commission.Like this article? Sign up to Left Foot Forward's weekday email for the latest progressive news and comment - and support campaigning journalism by making a donation today.