EDITOR'S TAKE: The Lib Dems' bonus plans are dangerously foolish
The Liberal Democrats have done a good job of portraying themselves as the party of economic sagacity.
In 2003, when most people were busy borrowing, treasury spokesman Vince Cable asked Gordon Brown (then Chancellor of the Exchequer) about the UK's damaging levels of consumer debt. And in Channel Four's recent Ask the Chancellors debate, it was Cable who won the most public votes for his performance as a balanced and worldly economic seer.
However, the Lib Dem's banking and bonus plans, outlined in a news conference this morning following last night's interview with Jeremy Paxman and Nick Clegg, suggest a definite lack of sagacity and a distinct surfeit of popularism.
In the unlikely event that they get elected, but the increasingly likely event that they have some say in a hung parliament, the Lib Dems have laid out their intentions for banking compensation.
They include:
· Capping cash bonuses at 2,500
· Ensuring that any bonuses above 2,500 aren't paid for at least five years
· Forbidding loss-making banks from paying bonuses at all
· Revealing the names of any bankers earning more than the prime minister (198k a year)
Each seems distinctly misguided.
Firstly, capping bonuses at 2,500 will simply lead to far higher salaries (even more so than already). This will a) make City employment levels more prone to the vagaries of the financial cycle, and b) remove any notion that people get paid for performing.
Secondly, capping bonuses at 2,500 and insisting that nothing can be paid out for at least five years, really isn't a good idea. Enforcing a five year wait will reduce labour mobility. And imposing this unilaterally will simply have the effect of encouraging the highest earners, and ultimately entire businesses, overseas. Is this sagacious when the UK is facing its biggest deficit in peacetime history and the financial services sector pays around 55bn in tax revenue?
Thirdly, forbidding loss-making banks from paying bonuses will simply lead to those organisations losing the ability to make a profit in future. RBS already complains that its revenues would have been 1bn higher last year were it not for staff defections. And UBS, which did make an effort to pay well last year, despite not really being able to afford it, is now making a comeback.
Finally, is it really wise to reveal the names of bankers earning more than the prime minister? Not only is the prime minister's true income distinctly higher than 198k given his free central London accommodation and generous expenses, but naming (and shaming) anyone earning more than 200k is tantamount to a licence to lynch.
In reality, none of this should really be all that surprising. Despite moving to the right in recent years, the Lib Dems appear to have an inveterate loathing for banking.
During the recent television debate, Cable referred sneeringly to 'casino banking' repeatedly. He also reiterated his aim of a Glass Steagall-style separation of trading from traditional banking businesses. It took Alistair Darling to point out that 'casino banking' wasn't the cause of the crisis.
