Anti-bonus rhetoric is ratcheting ever-higher ahead of probable by-election disaster
It would be good for banks if the Lib Dems don't do too badly this Thursday.
On January 13th, it's the Oldham East and Saddleworth by-election. Labour is expected to win, massively. The Lib Dems are expected to lose, disastrously.
Unless you're a Lib Dem supporter, this might not be a massive issue, but if you work in financial services it's likely to become one. This is because Labour is attacking the Lib Dems over bonuses and in wake of their decimation on Thursday, the Lib Dems will feel very obliged to respond.
Alan Johnson, Labour's shadow chancellor is quoted in today's Financial Times saying that, "On bonuses themselves Nick Clegg said they would not stand 'idly by'. It looks like they are standing 'idly by'."
This follows claims that George Osborne has given up on bonuses following the failure to extract any significant commitment from banks to reduce them this year.
The FT says there have already been 'heated arguments' between Lib Dem and Tory ministers who respectively want and don't want to restrain bonuses further. The anti-bonus rhetoric ratched up several notches over the weekend.
Lib Dems want bonus disclosure
In particular, the Lib Dems want to reinstate Labour's plans to require that each bank discloses the number of bonuses it's paying above 1m. The Conservatives dropped this last November, causing disconcertion among Lib Dems at the time.
The Lib Dems are susceptible to Labour claims that they've watered down bonus legislation as result.
Unsurprisingly, therefore, this weekend, Lord Oakshott, a Lib Dem Treasury spokesman called again for banks to disclose how much they pay.
Conservatives stepping up rhetoric too; Hester the political football
With their coalition partners under intense pressure to be seen to be doing something about bonuses, the Conservatives are feeling the obligation to make negative noises too.
Hence David Cameron appeared on Andrew Marr yesterday advocating that banks pay smaller bonuses.
The real squeeze has, however, been reserved for RBS. Following Telegraph claims that Hester was planning to accept a 2.5m bonus this year, Cameron insisted that as a government-owned bank, RBS shouldn't be leading the way on bonuses, but should be a backmarker.
This was ignoring the fact, however, that RBS is a backmarker. In chief executive terms, 2.5m is minute. Last year, the Financial Times points out that Bob Diamond and John Varley forewent a combined 30m in bonus payments.
This year, the FT says banks are preparing to actually pay their executives bonuses after last year's sacrifices were apparently overlooked. Equally, it said the weakness of the Lib Dems is emboldening banks to think big bonus payments are possible this year.
Unfortunately, the opposite may prove the case. The weaker and more vulnerable the Lib Dems become, the more it will be necessary for the coalition to be seen to do something to restrict banking compensation. Politically, this week could be crucial.
