If you own a bank you need to tell it what to do

This morning I awoke to hear that the government line on RBS bonuses is they do not want to run the bank, and have to allow the management to incentivise the staff. What nonsense! If you own a business you are responsible for appointing the management, for deciding how to remunerate them, and setting them objectives. As the taxpayers representatives the government has a duty to tell the nationalised banks what their aims are, who will run them, and what we will pay them. They cannot deny all power or involvement. That’s a stupid cop out.

It’s none of the government’s business how much Barclays pay their staff or how big their bonuses are. That’s still a matter for Barclays shareholders as they refused taxpayer share capital.

At least this weekend saw briefing from RBS that they are at last going to slim the Group down to cut taxpayer risk. Readers of this site will know I have been urging them to do so since they first dreamt up the dangerous idea of nationalising it. Let’s hope the government backs this or even encourages this. Or is this further evidence of banks we own but do not control? Was this a spontaneous policy on the part of the new management, quite unconnected with the interviews and job offers made? What is UKFI doing in all this to earn their bonuses? What guidelines are they setting RBS? I of course as an MP am not allowed to know, as my questions on it are blocked. People should not be so surpised. Many of my questions on all sorts of subjects relating to public money are blocked, and many of the ones that are allowed do not receive anything a normal person could call an answer. It’s just the way this government treats Parliament.

They are looking at cutting back the size of the investment banking activities substantially, as they should. They are looking at disposals of overseas activities. The sooner the better, as we need to get the bank down to a size the government can manage, before completing the return of the viable parts of the business to the private sector.

Liam Halligan this week-end in the Sunday Telegraph wrote a good piece warning about a possible increase in inflation in due course. He is right to remind us that CPI inflation rose last month to a high 4.1% if you adjust it for tax changes, and right to remind us that imports are going to be a lot dearer as the big fall in the pound works through to consumers. Readers of this site may remember my warnings of price increases ahead based on the fall of the pound. We have already seen some car price increases announced, despite the poor demand, as manufacturers seek to offset some of their losses on the Euro. We should expect more for other imported goods.

The Monetary Policy Committee will doubtless come up with some tortured prose to try to justify their further cut in interest rates last week. They clearly are not considering inflation in a year or so’s time as they should be, as prudence would have dictated an increase in rates from 1.5% if they had been. They are once again getting it wrong – they are so mesmerised by the present mood all the time, they find it impossible to think ahead as they should. They are clearly trying to manage rates now with an eye to activity rather than to inflation. Did they not see that despite agressive price discounting and the big drop in activity, some prices are already moving up, with much more to come as the lower pound works its way into import prices? Have they bought any petrol or diesel recently, where the pound has offset a chunk of the fall in world oil prices? Do they watch City attitudes to inflation linked bonds and to future inflaiton protection from commodities?

Once again they are driving using the rear view mirror, and now they even have a blurred view of that. Inflaiton is still too high despite the collapse in demand and output. We are living through slumpflation. There will be more price increases ahead, as a greedy public sector puts up its fees and charges, and as the higher import bill feeds through. The Monetary Policy Committee is meant to take all that into account. Instead, in a state of panic for their past mistakes, they continue to do the wrong things.

Meanwhile the Chancellor kicks bank bonuses into the long grass of a year long review. Why is it so difficult to accept the consequences of his mistaken nationalisation of RBS? Why can’t he come out and say as owner he wants to sell it off bit by bit as quickly as possible before it does more serious damage to the public accounts? And in the meantime there will be no bonuses for 2008, because the bank as a whole lost a stunning £28 billion and needed public money to preserve all its jobs.

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23 Comments

  1. Blaad
    Posted February 9, 2009 at 9:41 am | Permalink

    I disagree with the broad brush opinion, voiced by many, that these bonuses shoul dnot be paid.

    Specifically, the bonuses should not be paid to the most senior managers of the banks who were responsible for the setting of ever unachievable sales targets, for the often bullying management tactics employed to press customer facing employees to reach these targets and for the loosening of the credit criteria to encourage mortgage loans to people who were unable to properly afford them.

    Those involved in all the complex financial instruments, derivatives and the like deserve no more bonuses either. They will have had plenty so far in any case.

    The employees in the branches and business centres (the ‘ordinary’ people) who work damned hard to provide service in the face of such greed from the top do deserve their bonuses.

    I speak from experience having been a middle manager in a High Street bank until last year.

    • Ian Jones
      Posted February 9, 2009 at 12:20 pm | Permalink

      Any company which is bankrupt does not pay bonuses regardless of level because it has no money. One that loses 28bn, receives money and guarantees from the taxpayer to the tune of hundreds of billions most certainly should not get a penny. Its basically taking it directly from the taxpayer and putting it in the pocket of a bank employee. It stinks.

    • brian kelly
      Posted February 9, 2009 at 12:59 pm | Permalink

      In my view, no employee of a failing tax payer supported bank should be paid any bonus whatever which should incentivise each employee to play his or her part, however small, in ensuring the organisation is properly functioning and profitable. A private bank, or any organisation, should follow the same rules. Ideally, any bonus culture or profit sharing schemes should be related, in some way, to the long term profitability of the organisation. Nor do I think anybody should be voting themselves a bonus – it would be better if shareholders decided if, and how much, bonus is paid.

      • THE ESSEX BOYS
        Posted February 9, 2009 at 7:05 pm | Permalink

        We are miffed having read dozens of blogs on several sites. We are the only ones to mention the word ‘CRITERIA’! Anyone offered a bonus would surely have some documentation on the terms of its payment? It would either be linked to an individual or team target and/or be dependent on the results and health of the organisation.
        It is then a simple task to determine if, what and who to pay.

        It’s hard to believe that any individual in the ‘nationalised’ banks could have performed well enough individually or collectively to have met his/her target.

        If the indefensible has occured and no criteria were set each situation should be judged on its merits but large sums witheld nevertheless and future employment prospects and terms judged accordingly in thelight of the bank’s position.
        Those responsible for the contractual omission would be guilty of negligence and hardly deserve to retain their jobs let alone receive a bonus.

        To use that much overdone term -‘It’s not rocket science’ …well it ain’t!

  2. Lola
    Posted February 9, 2009 at 10:24 am | Permalink

    Mr Redwood. We’ve already had the inflation – aka the massive increase in the quantity of money and an accompanying debasement of its quality. The price rises that follow such debasement or unavoidable. Brown’s policy of massive expansion of the money supply (even if corrected for GDP growth) was bound and certain to end in tears. Losing control of money broad supply is at the very core of the current problems. Inflation – in the popular view as rises in prices – is already in the system as the debased currecny makes imports more expensive and domestic traders seek more profit.

    Don’t let Brown get away with this.

  3. Thatcher-right
    Posted February 9, 2009 at 10:27 am | Permalink

    On consideration (call it after the event foresight) the main problem in the banking sector are as follows. The government provides guarantees for customer deposits. These are huge liabilities which it cannot afford to have called. Also, inter-bank trading has created a situation where, if one bank goes, they all will. Finally, these banks have been participating in high-risk activities.
    I would propose that, in future, there be two sorts of banks recognised. There should be a set of straightforward customer- facing banks which should follow low risk strategies, like old-fashioned building societies. Their deposits would be guaranteed by the government. To help maintain focus, the board of any of these banks which calls the government guarantee should expect to find themselves personally bankrupt and be spending a few years in prison.
    By contrast, there should be an unregulated sector where customers are responsible for there own money. Risk and rewards would be correspondingly greater.
    So next time it all goes pear-shaped there is a core of boring, safe institutions to continue to keep money moving.

  4. brian kelly
    Posted February 9, 2009 at 11:18 am | Permalink

    This government’s main aim is to win the next election. It thought, until recently, there would be an opportunity to go for a GE this year – that opportunity looks to be closing. So every policy over many months has been to delay and soften, by palliative and short term measures, the very severe effects of the recession or depression coming down the line. General policies which they know are unpopular with the electorate are either being quietly dropped or reversed. There has been consideration, I am sure, regarding future inflation and the future ability of this country to pay the debts that are massively building up. But those considerations and any actions to avert the dire straits the country is heading for take a very distant second place to the imperative to get through to the next election with a chance to win it. We have never had a competent govt since 1997 but it now is a positively dangerous one.

  5. Ian Jones
    Posted February 9, 2009 at 12:18 pm | Permalink

    Its a shame your leader does not express the same views because frankly the UK has a National Socialist party in charge ….who ignore parliament, spend hundreds of billions with no vote by MP’s and persecute anyone who disagrees with their views.

    The Bank of England has never been “independent” as proven by the housing boom followed by bust. It was a con which everyone now sees and all credibility is lost. The next step will be rampant inflation.

    It is actually quite frightening to watch from outside…..

  6. Cliff.
    Posted February 9, 2009 at 12:18 pm | Permalink

    I wonder if many of the problems within the banking sector are similar to those in the national government; namely centralisation.

    It seems to me that since we moved away from the traditional branch manager that, in general terms, was a middle-aged man that lived locally, had known the customer base for years and had worked his way up through the ranks. He made decisions on the basis of his knowledge and had some level of authority to make such decisions. Now we have the computer making such decisions, which suggests that the management do not trust their staff at branch level.

    It is true to say that, as in the case of government, the person right at the top only appears to trust his own judgement and wishes to take much of the decision making away from those further down the line.

    I actually disagree with the popular cry being put forward by the media to not allow these “nationalised” banks to pay bonuses. Some staff would have a low basic salary with most of their income coming from their bonus payment…..I can see the sense in not allowing those further up the chain that have engineered the crisis not to be rewarded for their incompetence. In a similar vein, those at the top level of government shall not be rewarded with a further term when the shareholders (The electorate) of UK PLC get a chance to vote……I also hope we shareholders also get a chance to vote on the hostile take over of UK PLC by the EUSSR….We definitely need a new board!!

  7. savonarola
    Posted February 9, 2009 at 1:09 pm | Permalink

    “My questions blocked….”

    OT

    May I ask if you were invited to join Mr Cameron’s Economic Recovery Unit?

    Have you anything to say on this that is not ‘talking out of shop’?

    I understand if this is not the forum for such questions.

    Many of us are puzzled as to why you sit on the outside.

    Reply: No I was not invited.

  8. Chris
    Posted February 9, 2009 at 1:41 pm | Permalink

    No bonuses because the bank lost money…

    I am glad to hear someone else say this. If they don’t like it take away the public money and see how big a bonus they then get.

  9. Waramess
    Posted February 9, 2009 at 2:02 pm | Permalink

    From Dr. Eamonn Bulter-Adam Smith institute website

    “Bankers have indeed made serious mistakes, though a surprising quantity of them were made on the wave of euphoria and cheap credit created by – you guessed it, the same politicians who are now telling the bankers how to do their jobs, despite utterly messing up on their own.”

    from a Ron Paul lecture

    “you don’t need to be a genius to work out that by increasing the supply of money you devalue that already in circulation”

    The most worrying aspect of this entire fiasco is that the government appear to have a winning ticket when they attack others for their own misdeeds.

    Why not stop atacking the banksters and start attacking the real culprits.

    The government have caused every facet of this monumental mess, including but not limited to shelling out taxpayers money on the back of substandard terms and conditions; a firing event for any bankster.

    Who has been fired for approving the conditions of the bailout?

    Nobody. But the government “get away” with it again with noise and smoke.

    We must stop taking our cue from the government on who to attack next. Is there nobody in parliament willing to properly defend us against this governments incompetence and its rhetoric?

    • Rik
      Posted February 9, 2009 at 4:55 pm | Permalink

      Could not agree more with your statement. Nobody seems willing or able to take this government on. Especially the media. Governments, in the past, have been hounded out of office for far less, hypocrisy, sleaze and mistruths than this group of self interested incompetents deliver each day.

  10. rugfish
    Posted February 9, 2009 at 4:30 pm | Permalink

    I’d pay bonuses to the staff, and erase the bonuses of executives and higher up’s who caused it. That’s the fair way under the circumstances I feel, and would make a clear demarcation line that those who were irresponsible were not rewarded, and those who had nothing to do with it were not penalised along with them. If Alistair Darling took that position then I doubt there’d be a political cry over it. Another solution would simply be to defer bonus payments too, so they become payable if and when the business is back into the black. Again, who could argue with that?

  11. chris southern
    Posted February 9, 2009 at 4:38 pm | Permalink

    When any decision is made all you need to ask is, “Who benefits from this decision ?”
    I honestly believe that The Labour party cabinet and the Labour party benficiaries (main donaters) need to be inspected for fraud.

    As for the bankers, if they wish to continue to operate public funded casinoes then an alternative for the public needs to be opened that won’t pay as much, but won’t be a risk taking entity.

    The whole banking system needs to be looked at and long term plans drawn up for it’s transition from the current operating model into a safer and more stable business model for the future.
    I won’t bother going into the fractional reserve practice as i have mentioned it too many times already.

  12. Rik
    Posted February 9, 2009 at 5:02 pm | Permalink

    Another straight to the point article. I would dearly like to hear your thoughts on Mr Brown’s recent statement about “sweeping away the bonus culture”. Why deliver such a comment now. New labour have been in power for years. If they truly felt the bonus culture was an insidious part of the problem, why wait to now to do anything about it. Just another headline grabbing statement. Which the media are all too willing to give credence to. This country is in serious trouble!

  13. Matthew Reynolds
    Posted February 9, 2009 at 6:09 pm | Permalink

    Simple ! Just sell the all the state shares in the banks , ax the pointless VAT reduction and tell all QUANGO’s to cut 15% from their budgets or face losing all public money. The 10p tax compensation handout can go along with tax credits for the wealthy , RDA’s & the New Deal. You could give basic rate taxpayers a nice large rebate cheque in 2009-10 and replace that with a permanent rise in the basic personal allowance from April 2010.

    This would move money to those battling to cope with strained finances allowing consumer spending to be cushioned and debts to be repaid.

    As a longer term reform you could scrap this demented 45% top rate rubbish , cut the 40p rate to 30p and raise the threshold for top rate tax & claw back of basic personal allowance & age related allowances to say £250,000 p/a. The basic personal allowance should be £12,000 p/a and pensioner tax allowances raised to one £20,000 tax allowance for the over 60’s. Basic rate income tax should go down from 20% to 15% and be axed on savings , shares/dividends and pensions.

    Just growing public spending by 1% less than average GDP growth would force Ministers to strip out the waste to avoid cutting vital services and that could fund the said tax cuts.

    Cutting public spending & taxes will get the economy going just as those policies did in Reagan’s America early on in the 1980’s.
    The government should not be running banks – Labour Ministers could not run a booze up in a brewery ! Their FSA did not cover itself in glory either….

  14. FatBigot
    Posted February 9, 2009 at 7:28 pm | Permalink

    If a business owned by me is losing £1million a year I would be happy for people to be employed on low basic salaries with bonuses dependent on how much less the loss is next year. Get it down to £500k and you get 10% of salary, eliminate it and you get 25% of salary. No reduction means no bonuses and, consequently, the costs have been kept down because only the low basic salary is paid. Seems a pretty good structure to me.

    The problem, if there is one, is not the simple fact that bonuses are payable. What matters is the terms on which bonuses are earned. If these do not benefit the business they are objectionable, if they do provide a benefit there is no problem.

    Struggling football teams pay players bonuses for securing a certain number of points and surviving relegation. That the same players might be blamed for dismal performances in the early part of the season is neither here nor there; the bonuses are designed to deal with the situation as it is now not as it was several months before.

    A blanket ban might make no difference to anything, but I’d be pretty sure that it would make things worse because it limits the ammunition available to the managers to organise their bank as efficiently as possible.

    Incidentally, Mr Cameron didn’t need to invite you to his discussion group since all they do is discuss what they read on your blog (well, maybe; it’s certainly what they should do).

  15. Atlas shrugged
    Posted February 9, 2009 at 9:13 pm | Permalink

    Thank you John for the answer to my last question. However I think you have missed the point.

    I would strongly argue that the benefits of new technologies have not increased the basic standard, or quality of life. Mobile phones are useful, but how is the increased efficiency they give business for example, feeding through to a general increased standard of living?

    The same could be said for all other technological developments. At least the ones we are told about, or are allowed to actually use ourselves, instead of them being used to micro manage, murder or intimidate us.

    My company was reasonably efficient 20 years ago. Now I employ less then a tenth of the staff, produce 5 times the turnover and have slashed overheads several times. Yet the government seems positively determined to put me clean out of business. Not because I personally do not make money from other speculative investments, but because my company is virtually operating as an unregistered charity and unpaid government VAT, PAYE and NI tax collector.

    I have seen off most of my competitors, yet making things in this country is basically a pointless hiding to nothing. Anyone starting a business doing what I do now days in this COMMUNIST/FASCIST nightmare of a country, would have to be certifiably INSANE, a very rich man looking desperately for a tax loss, or a criminal washing their extremely dirty money.

    Employing people other then family is the most suicidally stupid thing to do, next to jumping off of the Golden Gate Bridge, without a safety rope, while taking deadly poison and slitting ones own wrists, at the same time.

    On the subject of Banks. You really do not want me to go there, but I will do so all of the same.

    Personally I would much prefer to see criminal arrests at the highest level. If the banks have a serious problem, which they very much do, then the buck must stop at the VERY TOP. That does not mean lowly bank managers, it means OWNERS. Which does not mean the owners of HSBO or RBS or HSBC. It means the people that control the CENTRAL BANKS and the people that control the WORLDS central banks that control them.

    Which is The World Bank, The IMF, and The Bank of International Settlements.

    The whole lot should be swiftly rounded up and in the Old Bailey handcuffed by lunch time tomorrow, facing 40 years hard labour or worse, at least. We should not be concentrating any efforts on bonuses. But on the people that FORCED/BRIBED retail and commercial banks to lend vast sums for extremely nasty NWO type reasons.

    I know this is impossible, as these people COMPLETELY control this entire country/planet and therefore its political and judicial system. However it really is the only way to stop things getting forever worse. Unless this happens there will NEVER be justice for the worse murderously evil criminals this world has ever know. (sentence left out)

  16. diogenes1960
    Posted February 9, 2009 at 9:51 pm | Permalink

    John

    For a couple of months I have been awaiting an answer to a rather detailed question. When the Great Gordon changed the system of corporation tax on dividends early in his imperium, the Inland Revenue said that there was a large sum of money – was it £6 billion? – stuck in irrecoverable ACT. Does anyone know what happened to that interest-free loan from taxpayers to this government?

  17. tim holden
    Posted February 10, 2009 at 9:00 am | Permalink

    Many of the smaller bonuses will be paid to bank employees who work in Edinburgh and who live in key constiuencies in Scotland. Do not sympathise with the little guy in this – his vote is being bought. Brown will probably lose his own seat if these bonuses are not paid.

  18. Waramess
    Posted February 10, 2009 at 9:24 am | Permalink

    Never did I expect in my lifetime to see John Redwood and John Prescott on the same side of the argument.

    Alway a danger when chucking bad eggs and rotten cabbages.

    Gordon Brown at his most devious, blaming the banksters when it should be clear for all to see where the root of the problem lies, and he now ropes in the whole of the front bench in condemning banksters.

    Gordon gets off the hook by popular acclaim.

    But be sure that every action has its consequence and if you remove the ability to pay incentive payments from only some of the banks you risk failure in ever returning tax-payers investment. Remember that banksters have been paying bonuses for many years without shareholder restraint, and their shareholders have only one agenda; to make a profit.

    The representatives of the “new” shareholders carry much more baggage, and all of it socialist baggage.

    They now fire their opening volley in an effort to bring back fear in the minds of the voters with headlines that this will be the worst recession for 60 years. Of course they know by now that fear even provides Gordon with a boost to his popularity and they can be pretty sure that once again they will carefully craft the agenda of the opposition to their advantage.

    These people might be fools but they are crafty tacticians.

  19. Bazman
    Posted February 10, 2009 at 9:32 am | Permalink

    It would be interesting to know after all the years of boom. Did more money flow into the treasury/taxpayer than is now flowing out now? The government did get a lot of money from this scam, so was it, or was it not a success? Maybe some senior banker could tell us all about his sterling work and how he deserves his bonus? Go on amuse us! The bonuses for the branch staff are deserved, as they where instructed to flog useless bank accounts with a monthly fee for services you did not need. As well as savings accounts with much less than inflation rates of interest. ‘GOLD’. Most of the woman at the counters in my local branch looked embarrassed to have to do this.
    Now we are hearing about making the banks mutual. Did anyone who could see past the money, ever thought banks gave money away? Some where even surprised that their mortgage went up after the building society demutualised!? LOL!
    When you have money, banks love you, when you are skint they don’t want to know. Have a think about this blinding fact if you are not sure.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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