Why is Osborne obsessed with bonuses?

It is hard to work out what the bankers did to George Osborne. Perhaps he was refused an overdraft at a formative age. Whatever it was, he is taking his revenge, saying that the large British banks should only be allowed to pay trivial cash bonuses. The plan has its political attractions — focus groups tell him no punishment is too harsh for the City of London — but also three significant economic drawbacks. It is vindictive, ineffective and it fails to address the true reason for the crash.

Let us first examine this on a practical level. Cash bonuses would be outlawed, but banks would still be able to pay their staff as many millions as they want in shares (how the Treasury would feel seeing its stake in the Royal Bank of Scotland diluted, and bankers paying low capital gains tax rather than high income tax, remains unexplained). The rule would only apply to UK commercial banks, not to pure investment banks, or subsidiaries of foreign banks (such as Goldman Sachs), or hedge funds. At the root of this is the belief that there is a moral equivalence between RBS’s performance, which needed a huge taxpayer bail-out, and that of HSBC, which took not a penny from the government. Talk of moral hazard: regardless of how well you do, you will still be hammered by the government.

But like much of Tory economics, this is primarily intended to seek votes rather than to help the economy. It plays to a blame-the-bonus narrative, which is as clear as it is flawed. It goes something like this: greedy traders, incentivised by absurd short-term bonuses, took near-criminal risks with their firms, buying complex derivatives that turned out to be worthless.