CITY ANGER AS BROWN SIGNS UP TO BONUS CAP
THE bitter row over the future of the City intensified yesterday after Prime Minister GordonBrown signed up to a joint Franco-German letter which signalled a fresh, much harsher line against bonuses.
The letter to the G20 chairman, coming ahead of today’s meetings, said they should “explore ways to limit total variable remuneration in a bank either to a certain proportion of total compensation or the bank’s revenues and/or profits.”
Despite the dramatic u-turn, the Treasury said it was still opposed to some of the more radical anti-bonus plans. “You’ll notice there’s no reference to the word ‘cap’”, a Treasury source told Morning Wire “It’s very carefully worded. We want to see an end to inappropriate remuneration.”
But in a speech at the CBIScotland dinner last night, Alistair Darling failed to go as far as Brown’s new hardline approach, fuelling fears of a rift between the two.
And senior City voices warned that the crackdown is going too far. CBI boss Richard Lambert slammed Financial Services Authority (FSA) chairman Lord Adair Turner’s proposals to introduce a new global “Tobin tax” on financial transactions.
“You’d have to be mad to impose such a levy unilaterally without it being imposed at the same time in the rest of the world. Since there is no chance of this happening, this is not a point on which to linger,” he said. And in response to Turner’s description of parts of the City as “socially useless”, Lambert said: “In a free society, it’s not the job of a politician – or, for that matter, of a regulator – to argue that a particular form of activity is or is not of social value.”
He added that the City is not “some bloated excrescence throwing the whole UK economy out of balance… Total pay of financial services employees represents a bit less than four per cent of GDP. For comparison, the public sector equivalent is over 16 per cent. Which figure is too big?”
Lambert’s unusually strong attack came after Turner yesterday warned City banks of a “tax on size” if they become large enough to pose a risk to the financial system. He said that if the forthcoming Basel Committee rules on big bank solvency are not tough enough he will call for specific UK rules, such as lenders boosting capital reserves and asking banks to increase solvency provisions fivefold in risky areas of business.
The US, Britain, Germany and France will also be discussing exit strategies from the massive stimulus packages at the meeting, following much better economic news.