Coalition gives up on tackling bankers’ bonuses as 2010 total set to hit £7bn

It’s hardly a surprise, but the coalition has decided that it has done as much as it intends to tackle excessive bankers’ bonuses, even at a time when small businesses continue to suffer as banks refuse to lend. Most banks will not pay out their bonuses for 2010 until February 2011 but the Treasury minister Lord Sassoon’s declaration in the House of Lords this week indicates the government is satisfied that its ‘work’ on City bonuses is complete.

It’s hardly a surprise, but the coalition has decided that it has done as much as it intends to tackle excessive bankers’ bonuses, even at a time when small businesses continue to suffer as banks refuse to lend. Most banks will not pay out their bonuses for 2010 until February 2011 but the Treasury minister Lord Sassoon’s declaration in the House of Lords this week indicates the government is satisfied that its ‘work’ on City bonuses is complete.

Lest we forget, back in May a key Coalition promise was to “bring forward detailed proposals for robust action to tackle unacceptable bonuses in the financial services financial sector”.

Such lofty language will not be matched by actions. The Centre for Economics and Business Research think-tank has estimated that 2010 bonus payouts will amount to around £7 billion.

The u-turn took place when Lord Sassoon told peers:

“The government has taken action to tackle unacceptable bonuses in the banking sector. The Financial Services Authority is updating the remuneration code, which will ensure that bonuses are deferred and aligned with the underlying risks, and significant portions of any bonus will be paid in shares or other securities.

“Employees in this industry will no longer receive all their bonuses in cash while leaving their shareholders, and potentially the taxpayer, exposed to the long-term consequences of the risks they take.”

At the same time, the government is giving small businesses another slap in the face with the prime minister indicating the coalition will not introduce net lending targets on the banking sector.

Asked by Lord Myners, Labour’s former City Minister and a former hedge fund manager, if this meant that future bonuses would be “deemed to be acceptable”, Sassoon added:

“We have indeed taken action, including, among other things, requesting the Financial Services Authority to take certain factors into account in its consultation on the remuneration code.”

The remuneration code was established by the FSA in 2008 on the instruction of Labour at the height of the banking crisis when banks were paying out bonuses despite incurring huge losses and receiving taxpayer bailouts worth an estimated £1 trillion.

So, for all business secretary Vince Cable’s party conference talk of City ‘spivs’ and ‘gamblers’, the reality is the City policy is being dictated by George Osborne. Lord Sassoon repeated Osborne’s line in his spending review speech, trumpeting the importance of the City to the British economy.

Despite the urgent need for the banking sector to reform and make bonus payments on the basis of merit, and increase lending to energise private sector growth, the sad reality is that while the coalition remains in power it is business as usual for the City.

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