RBS, now paying bonuses of up to £5m to the top 20 executives in its investment banking division, goes from one scandal to another in insulting taxpayers. Whilst it would not have survived without a vast Government subsidy of some £40bn and is now 70% owned by the taxpayer, it has the gall now to set up a total pay and bonus pot of £4bn, larger even than at the height of the financial boom before mid-2007 and 60% higher than those paid last year. Even the average employee in the RBS investment banking arm is due to be paid a staggering £240,000, no less than 12 times the average national wage. And all this comes on top of a bonus package of £10 million awarded, grace of the taxpayers, to Stephen Hester as the new chief executive plus £7 million paid to one of their bond traders as a ‘golden hello’. Given this mountainous greed, will banks expecting bumper profits heed Ministers pressing them (as the did repeatedly in this last week) to curb top pay? Will they, hell.

Goldmine Sachs in the US responded by announcing a $16.7bn world record bonus pot. The bank’s projected revenue this year is $44.6bn and the projected compensation per head is $743,000 (£453,000). Other banks reporting profits this year are declaring smaller, though still enormous, figures. In the UK the Economic and Business Research data company is projecting that total bonuses this year will rise by 50% to £6bn compared to last year. In this field of untrammelled Mammon, expecting the banks to accept voluntary constraints or to abide by a set of G20 principles is like expecting the Victoria Falls to dry up. It isn’t going to happen.
So what should be done? First we should recognise the stark fact that bankers don’t do conscience or moral debt to society; in the temple of Mammon it’s grab all you can, and stuff everybody else. The only way to bring such unbridled greed to heel is by clear and robust regulations and laws. The latest conventional wisdom is a windfall tax, which would certainly be justified. Whether it is the best option however is another matter. In the current context where much of the competition has been eliminated and there’s a huge market for Government gilts, the banks would find it easy simply to pass it on to customers. More long term, if investment banks keep turning in vast profits year after year, do we have a windfall tax ever year? Much better to tax bonus payments directly, more heavily than regular pay, and on a progressive scale upwards. Plus other much needed reforms: breaking up the banks (as Mervyn King is now strongly advocating) so that the investment arms are hived off, a Tobin tax on transactions, and rule changes on the tax-deductibility of interest.

Bookmark to: