SOMETIMES it looks as if the banks and the UK Government have learned nothing from the great crisis of 2008.
All across Britain, wages are static. Many workers have not had a rise in years, thanks to a downturn precipitated by the follies of the banking sector. Meanwhile the poorest and the disabled, whether in or out of work, face cumulative cuts to their benefits.
This is a climate in which RBS, where some workers earn so little that they qualify for tax credits, yesterday announced the payment of £215m in bonuses to its investment bankers, despite returning a loss of more than £5bn.
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Taxpayers, who own 82% of this bank, have every right to feel affronted. Bank chiefs and Government Ministers were lining up yesterday to make their excuses: the bonuses would have been even higher without the fines for fiddling the Libor rate; they are at the "low end" of the industry average and are mostly paid in shares that can be clawed back if necessary; if bonuses were not paid, the best staff would leave; the figures include a £5bn charge for loan impairments (writing off bad debts); if you do not count the Libor fine and provisions for the mis-selling of payment protection insurance (PPI) and interest rate swaps on insurance products (IRSAs), the bank would have been in the black to the tune of £3.5bn. But it is not, and any fair-minded observer, who manages to perform a job of work without the incentive of a six- or seven-figure bonus package, is justified in questioning the morality, indeed the sanity, of a system that persists with such pay-outs.
It was the greed and hubris unleashed by the bonus culture that produced hyper-inflation in bankers' earnings in the first place. Perhaps it is time to call their bluff. After all, the investment banking sector is shrinking. Banks are not hiring. It could be worth taking the risk that a few hot shots will up sticks to relocate in New York or Malaysia or Zurich.
By chance, the Government had an ideal opportunity this week to progress substantive banking reform by backing a comparatively modest EU proposal to cap bankers' bonuses at a year's salary (or two years' pay with explicit shareholder approval). Instead of welcoming it, David Cameron claimed it would get in the way of implementing the Vickers Report and could lead to big increases in basic pay. London Mayor Boris Johnson called it "the most deluded measure to come from Europe since Diocletian tried to fix the price of groceries" in 301AD.
They have chosen a poor cause. If the EU makes a stand on these eye-watering bonuses, the rest of the world may well follow. If the banking system was being designed afresh, nobody would use the current model. There would be merit in a modest John Lewis-style profit share scheme, spread through all the staff. The advantage of such a scheme for shareholders and customers is that if there is no profit, there is no profit share.
Chief Executive Stephen Hester also indicated yesterday that RBS privatisation is getting closer. Government Ministers will decide on the timing of this. RBS must be sold when the timing is right for the taxpayer, not when it is politically convenient for an unpopular government casting around for a pre-election tax-cut. The decision to sell off the US business, Citizens, also looks questionable. Why sell a prize asset at a low valuation when it is one part of the business that could eventually turn a handsome profit for the UK's beleaguered taxpayers?