Don’t bank on reform

Much like the royal wedding announcement was a fantastic opportunity to bury any unpopular government decisions, the crisis in Ireland is working a wonder to obscure the fact that the coalition government is kicking legislation on disclosing bankers’ pay firmly into the long grass. Today it was finally made clear that despite internal disagreement on the issue the coalition would not be pursuing legislation to reveal the current level of bankers bonuses.

Much like the royal wedding announcement was a fantastic opportunity to bury any unpopular government decisions, the crisis in Ireland is working a wonder to obscure the fact that the coalition government is kicking legislation on disclosing bankers’ pay firmly into the long grass. Today it was finally made clear that despite internal disagreement on the issue the coalition would not be pursuing legislation to reveal the current level of bankers bonuses.

With bonus season just around the corner – and a pool of an estimated £7billion – this may be a decision they come to regret.

The original proposal and draft legislation introduced by Labour was set to disclose bankers pay in bands – £500,000 to £1million, £1million to £2million and so on – to show which banks were creating just how many millionaire bankers. This would have provided essential transparency in what is currently a very opaque system.

The British have an almost unique discomfort over talking about their own pay, which is probably why most people have no idea just how much people do receive. Yet, banking bonuses takes this to new levels and are some of the most obscure pay deals in the country.

This lack of transparency should be of serious concern, as until we know what is actually going on in the City in relation to pay it is near impossible to actually address it. If we don’t know who is paid how much then how can we deal with it?

Perhaps at this point it is fair to ask why it is so essential to address bonuses – if banks want to pay them that much why should the rest of us care?

Well there are numerous reasons around issues of fairness and accountability but surely the main reason must simply be that the short-term bonuses of bankers are linked to the economic crisis. A culture which encouraged short term calculated risks was in part driven by short term bonuses.

Yet this culture of calculated risk taking where a percentage of the profits can be won and any losses are borne by the taxpayer still continues unabated. No one is saying being a banker is an easy job but if the reward structures that got us into this economic mess that have resulted in some of the most draconian public sector cuts in a generation are continuing we should all be concerned.

After the crisis all political parties collectively declared “never again”. Action on bankers bonuses was promised and indeed some action has been taken, we are told that bonuses will no longer be linked to short term gains but instead tied to the long term viability of the bank, and that banks will be taxed on the bonuses they do pay.

However, these measures will be meaningless without the major plank of reform that was the transparency created through disclosure of bonuses; indeed, in the words of the business secretary Vince Cable:

“Transparency is key to creating confidence in any commitment from our banks to behave more responsibly on pay and bonuses.”

Trust in banks is essential, and so is making sure they are behaving in the public interest, which is why if we are to ensure that that we are not walking straight towards another crisis then tackling pay practices and increasing transparancy in the City is now more essential than ever.

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