Agreed in July 2010 by the Parliament and the Council of Ministers, the directive on capital requirements and remuneration in financial institutions, which was piloted through the European Parliament by Labour MEP Arlene McCarthy, made a series of breakthroughs on bank bonuses. For example, it mandated that the maximum cash proportion of a bonus should be 30 per cent and 20 per cent for bonuses over £500,000. The remainder would be deferred (and be clawed back if investments performed poorly) or paid in shares which could not be immediately cashed in.
However, the Treasury aimed to lift those cash limits and allow the shares to be cashed in, meaning a banker could immediately take home 60 per cent of their total bonus, on the grounds that a 20 per cent cap would “have a significant impact on the financial services sector’s competitiveness”.
The Government also continues to claim in public that it will tackle bonuses paid out by largely state-owned banks such as the Royal Bank of Scotland and Lloyd’s. The McCarthy report established strict limits so that banks would be required to repay taxpayers and strengthen their capital base before paying bonuses. But the Treasury document states that the British government will not place a moratorium on bonuses at state-owned banks as this “would impair the competitiveness of these banks”.
Meanwhile, the Tory-led Government continues to resist measures agreed both in the McCarthy report and demanded by Labour’s Treasury team to force financial institutions to publish their pay and bonus practices, particularly for bonuses worth£1 million or more. It also continues to oppose both the higher bank levy and an extension of the 50 per cent “bonus tax” advocated by Labour and used successfully by Alistair Darling when he was Chancellor of the Exchequer last year.
Having failed to take any action to tackle excessive City bonuses, even as VAT rose to 20 per cent and the inflation rate rose to 3.7 per cent, Conservative Chancellor George Osborne still told the House of Commons on January 11 that the Government had “introduced the most stringent code of practice of any financial centre in the world”.
Having reduced its implementation of European legislation to the bare minimum, and having refusing to implement any reforms beyond its bank levy, which is estimated to raise £1.2 billion in 2011, the Treasury document shows this statement to have been without foundation.
