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.