Cameron ducks proposals to veto RBS bank bonuses

The government is under pressure from Labour to stop the taxpayer-controlled bank from paying bonuses to its highest earners of up to double their salary.

Labour has tabled a motion to debate whether the government should reject any request from the bank to double the current bonus cap.

Under EU rules that came into force on 1 January, banks must limit bonuses to employees earning more than 1 million euros (£830,000) to a year’s salary.

But banks can ask their shareholders to set the cap at 200 per cent of salary. Since the government owns 81 per cent of RBS through UK Financial Investments, it could block the move.

But at prime minister’s questions in the Commons, Mr Cameron said the government would limit cash bonuses to £2,000 and prevent an increase in the overall pay and bonuses bill. He did not pledge to take action to limit individual bonuses paid in shares.

He said: “I can confirm today that just as we have had limits on cash bonuses of £2,000 at RBS this year and last year, we will do the same next year as well. If there are any proposals to increase the overall pay, that is pay and bonus bill at RBS, at the investment bank, any proposals for that, we will veto it.”

‘Smoke and mirrors’

This prompted Chris Leslie, shadow chief secretary to the Treasury, at accuse the prime minister of using “smoke and mirrors” to avoid taking action.

He said: “The prime minister gave the impression at prime minister’s question time that he was going to veto higher pay and bonuses. That was the clear impression he was trying to give.

“Maybe the prime minister was unintentionally misleading in the way that he was making that particular point and he might want to come back to correct the record. But some of us may well think that he was conveniently looking at this question of total banker pay at RBS, total remuneration, as a sort of device to slip out of this question about how he’s going to exercise that shareholder vote.

“Most of the people watching this particular debate would think, ‘Well it would be nice to get any bonus whatsoever. The same amount as my pay, crikey that would be phenomenal’. Twice the amount of pay, totally unacceptable.

“The chancellor and you are going to have to confront the anger of the public on this particular issue.”

The government is in a difficult position, having already complained to Brussels over the bonus cap. The Treasury launched legal action in 2013, saying the EU had gone beyond its remit in seeking to regulate bonuses.

Chancellor George Osborne warned the plan to curb bonuses would simply push up salaries in the City, while breaking the link between pay and performance. But he was outvoted 26 to one in a poll of finance ministers in the European Parliament last March.

Banking crisis

Treasury Minister Sajid Javid said Labour’s regulatory failures were at the root of the banking crisis and that while bonuses increased substantially under the last government, they had fallen by 85 per cent since 2008 and were often now deferred and paid in shares.

He added: “It is important for taxpayers that proposals by RBS are considered fully and properly. The government has not yet received a proposal from RBS on bonuses and once we do we will be in a position to judge whether these proposals represent value for taxpayers.”

City regulators have joined the chancellor in criticising the EU’s bonus cap. Andrew Bailey, chief executive of the Prudential Regulation Authority, warned that the bonus cap “will institute an unhelpful culture of banks spending their time finding ways to get around the rules”.

Barclays has reportedly told employees that it will introduce monthly role-based pay, which will depend on the role of the staff member and the performance of the bank overall.

HSBC, which is already considering salary rises to tackle the bonus limit, is also said to be discussing the option of making quarterly share payments to its top 1,000 staff.

City’s big earners

Figures from the European Banking Authority suggest that more than three-quarters of the EU’s highest-earning bankers in 2012 were employed in the UK.

More than 2,700 UK bankers earned more than 1 million euros in 2012 – up 11 per cent on 2011. Average total pay – including salaries, pensions and bonuses – for London’s top-earning bankers went up 35 per cent to 1.95 million euros (£1.6 million).

They were awarded bonuses averaging 3.7 times their base salary, up from 3.5 in 2011, according to the authority. But most measures suggest that bonuses are still below their pre-crash levels.

The Centre for Economic and Business Research says the total City bonus pool has fallen to around half its 2008 level and forecasts that bonuses will stay at a fraction of their pre-crash levels in coming years.

The think tank has said that “the largest single gainer from bonuses is the taxman” and pointed out that the exchequer loses out to the tune of billions of pounds in lean years for bonuses.

‘Back under control’

Speaking at a conference on EU reform in Westminster, Mr Osborne said: “This government has done more than any to bring the banking system back under control, to regulate banking properly, to ringfence our retail banks and make sure bankers are properly accountable and if things go wrong the money that they were given can be taken off them.

“These European rules will not lead to bankers being paid less. What they will lead to is a Fred Goodwin-style situation where you will not be able to get money back off bankers when things go wrong. That is precisely what we have been trying to get away from in Britain.”