City bonuses need to be curbed, but more tax is not the answer 

Chuck Unsworth

So where does this end? What other groups will come under the control of such a 'Commission'? And, if tax is paid (or avoided), what justification is there for further controls on a group of city workers (yet to be defined). Who, exactly, are the people who will have their remunerations scrutinised?

What about former Cabinet Ministers, who seem to be making large amounts of money on the back of their time in Office - without having to bear any responsibility for the success of their actions and policies. Similarly why should MPs get a payoff and pension paid for by us?

This is faux moral outrage.

RobertD

This problem needs to be attacked at its root which is that there is insufficent competiton in many banking markets. This allows banks to charge their customers too much, generating the excessive profits that fund the over generous bonuses.

The economic problem is not that a few bankers get paid to much but that the bank's customers, be they clerical workers wanting a credit card of a major industrial company wanting to raise capital to build a new plant, pay far too much for banking services and credit.

There are two causes of this explotation of customers that need to be addressed. Firstly banks have not only been allowed to become too big, governments seem to activly encourage it (Lloys HBOS, JPM Wacovia etc). Secondly the level of detailed regulation and control applied makes the starting of new banks exceptionally difficult. The result is banking activity is concentrated in a few organisations that refuse to compete agressively on price and collude with the regulators to rip off consumers and non-financial businesses.

There is not answer to banker bonuses than to hit their restrictive practices, reduce their profitability, and make them face real penalties for failure rather than state handouts. Then they will be more careful how they use their income.

davidke

Taxing booze as Sweden does hasn't been tried here. High tax i.e. high prices would certainly curtail consumption.

Ian Walker

Structure bonuses so that they're paid on a commission basis over the lifetime (or first 5/10 years) of the investments they make.

That way, if someone is getting a big bonus, it's explicitly because they've been making good investments over a period of time. And because the commission will be priced into the investment product, any bonus monies will already be "paid for".

Also, split up the investment and retail banking businesses. Bailout money for ordinary savings accounts shouldn't be used to pay investment bankers' bonuses, nor chief execs who oversee misinvestment in sub-prime mortgages.

Rhoda Klapp

Don't we tax more than half of a city bonus? Would not higher bonuses therefore be a good thing, becuase if that money was corporate profit or paid as dividend it would raise less money for the exchequer? Or is envy the only criterion amongst people who would also tell you money doesn't buy you happiness?

David

I don't know, I quite like the idea that I can slack off and because a senior person works hard enough to warrant a pay rise, I get one too as my pay is linked to his via a fixed ratio.

strapworld

You just cannot single out one sector for curbing. It has to be across the board.

But, a little warning. One sector where massive wages and bonuses are paid is the football industry. Now to curb this industry would ensure the demise of many clubs, as their star players would just jump ship and leave for clubs in other countries who would pay their ridiculous wage demands.

Now that would leave many clubs moving into administration or worse and such a move would, I have no doubt, create massive civil unrest- as they would see that their clubs had been brought down by politicians.

Similarily in banking, surely the best money makers would simply move away from this Country?

I am no economist but Vince Cable has proven to me that he is not as invincible on this subject as he tries to make out.

"Lib Dems want to close down Footie" now that would get Cleggy and co panicking!!

michael m

I am retired Bank Executive and am fed up with Vince Cable being hailed as an "authority" on how Banks' operate, when he has had no experience whatsoever of even having spent one day working for them.

Guido Fawkes

Has the Speccie been taken over by commies?

THX1138

"City bonuses need to be curbed"

No they don't we live in free market economy and good luck to them if they can their firm's to pay their bonuses I have no problem with people earning huge amounts of money.

AB

There's only one way forward, the largest financial institutions need to be broken up. Rewards on the scale the city offers can only be justified in a world of savage and unfettered competition where the cost of failure is individual ruin. The system worked well enough when Baring's stupidity resulted in the bankruptcy of one of the oldest institutions in the city. Too big to fail must end. The best businesses in the city have always been the ones with a healthy understanding that you're only one bad decision away from disaster.

C Powell

Vince Cable and Compass are missing the point in a big way. Financial services in the UK are one of the biggest earners and underpin a large part of the economy of London and the South East. Tax revenues have also paid for a large part of the welfare state.

The biggest threats to this industry are the proposals coming out of Europe which will significantly increase the cost of doing business within Europe (see, for example, the proposed directive on hedge and private equity funds and the proposed new securities regulator based in France. Compass's proposals may well contribute to a relative shrinking of this sector. So there has to be a very real possibility that the City will no longer be the goldmine it once was - both for the individuals in it and the economy as a whole. Now plenty may argue that this is a good thing - a rebalancing of the UK economy is certainly needed but while (if?) that happens, without those tax revenues how is the British state going to be paid for?

Rhoda Klapp

I agree with THX. I'm not sure what to do about it. The agreement, not the bonuses, which are a non-problem. RobertD though is right that banks too big to fail should not be encouraged, but in most of our economy regulations work to discourage small business because the big guys have captured the regulators. Swallowing EU regs whole doesn't help.

Pooley

There should be no curbing to reward or pay.

"excessive reward" sounds like commie-speak.

Who is to say what constitutes the "correct" amount of reward or bonus?

Curbing rewards, capping pay, limiting freedom.

It's not so much of a stretch to then proclaim that no-one should be salaried more than £50,000/annum, as it is "excessive".

Our slide into Big Brother socialism is becming ever greater.

And all for what? So Alistair Darling can win a few votes from some disenfranchised hippie?

Peter

I'm intensely relaxed about people getting filthy rich.

Ian C

There is undoubtedly some action that needs to be taken, but intelligent legisaltion is needed if it is to be done that way, and that is usually a contradiction in terms.

It needs very much more careful planning and experimentation. There are practitioners in the investment markets, such as Warren Buffet and others, who for example do not give senior execs. share options because you end up with executives with different incentives from the ordinary shareholder.

We need a far more flexible means of 'deferred pay' whereby 'bonuses' earned this year but not taken for a few years are more lightly taxed but not necessarily linked to the company's share price. This could be balanced with reduced tax relief on large pension contributions because the purpsoe of this relief is the incentive for adequate provision in retirement for the more all rather than for the higher earner, who will be able to afford to retire regardless.

The whole matter is worthy of wise, detailed consideration. Legislation is not likley to achieve that. Certainly not if it is rushed.

But huge earnings among those who society cannot afford to fail, so will always bail out, cannot continue unchecked. They are in a very privileged position and they need to learn respect for the rest of us and to be checked if they don't.

David

"I have no problem with people earning huge amounts of money."

Neither do I, but I think it is worth trying to ensure that bonuses are linked to the long term rather than short term profits which may be inherently unstable.

THX1138

Rhoda

I agree with THX. I'm not sure what to do about it. The agreement, not the bonuses"

LOL

Of course you should agree with me I make the most sense on this blog :)

crowbait

When will someone address the huge amounts of taxpayers money that will be required to fund the gold plated inflation proofed pensions enjoyed by the civil service?In the light of these sums what difference does the odd billion handed out to bankers matter.

Nick

You could make the tax revenues argument if these bankers actually paid higher rate tax on their salaries and bonuses, rather than employing clever accountants and avoidance schemes. It wasn't long ago that some of these "masters of the universe" were boasting of paying less tax than their cleaners, before they were revealed to be no more than mug punters betting with other people's money. This is a job for HMRC, not yet another quango (no doubt with a Labour quangocrat CEO on six figures plus bonus and final salary pension).
Wasn't it Nigel Lawson who decided that CGT and income tax should be set at the same level to stop avoidance by switching money from one to the other? Who would have thought it would be a Labour Chancellor that reopened the loophole?

Tom Mackay

We are loosinng sight of the real issue here. After all if a trader earns £10m between higher National Inusrance and higher tax he is going to be paying £2.4m more to HMG than he would of 12 years ago. No the real issues are (1) the lack of true competition between banks now allows profits to be high and thus salaries (2) the ability of high risk operations within a bank to bring down low risk ones (3)the non-alignment of traders interests with shareholders and (4)the collective amnesia of the fact that a trader's profit is a small punter's or small corporate's loss. Unless we address these issues we will have another disaster in 10 years time.