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RBS and Lloyds bonuses: it's business time

The chancellor is between a rock and a hard place as he decides whether or not to raise bonuses for taxpayer-owned banks.

by Emma Haslett
Last Updated: 28 Jan 2014

If Christmas is a time for giving, mid-January is a time for taking. In bankers’ cases, that comes in the form of the annual bonus round; in politicians’ cases, it’s more a case of taking the mick as George Osborne wedges himself unceremoniously between a rock and a hard place, trying to decide whether to pander to bankers’ desires or politicians’ wheedling. Either way, it’s not going to be easy.

This year will be particularly complex for Osborne, after the EU introduced new rules limiting the bonuses of bankers earning more than €1m to 100% of their salary – unless, that is, shareholders vote to raise it to 200% of salary. Since the government is the largest shareholder of RBS and Lloyds (it still owns 81% and 33% respectively), it’s up to Osborne whether workers at taxpayer-owned banks will have to lump the lower rate, which risks a mass exodus of staff, or whether they get the higher rate, which risks making the government look like it’s pandering to the rich.

Labour has, naturally, seized on this and tabled a Commons motion calling on the government not to approve any request to increase the cap. Chris Leslie, shadow chief secretary to the Treasury, gleefully reminded everyone that ‘families face a cost-of-living crisis and bank lending to business is falling’.

‘It cannot be right for George Osborne to approve a doubling of the bank bonus cap,’ he added. Hmm.

MT doesn’t envy Osborne his position: although Barclays is the only bank to have officially told staff it’s planning to seek consent from shareholders to raise the cap, the likelihood is that all European banks will have a go.

And although, with good results and the privatisation of 6% of the government’s shareholding, last year was good for Lloyds, RBS can’t exactly point to a sterling performance during 2013 to justify higher bonuses. Third-quarter results published in November showed a pre-tax loss of £634m in the three months to the end of September (although that was admittedly up from a £1.4bn the year before).

The last couple of months of 2013 were particularly torrid for RBS: having been accused of ‘sending businesses to the hit squad’ in November, its payment system went into meltdown in early December, then its newly-installed finance director quit less than two weeks later after just 10 weeks in the job. And then it was fined $100m for breaking US sanctions. As we said, not a great year...

Still: if there’s one thing which is going help both banks sort themselves out, it’s their people. And, as this graph (borrowed from suggests, they’re already putting up with some of the lowest salaries – and bonuses – in the business.  

So Osborne’s choice probably isn’t as tough as we make out: bankers in the round may be paid too much, but hobbling RBS would be cutting off his nose to spite his face. The fact is that, unless the banks remain competitive with their peers, the chances of them extracting themselves from government ownership in the next few years are slim. He’s just going to have to put up with the inevitable mud-slinging from the Labour benches…

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