Just another elite puppet PM!
And now: More change!
Feb. 9 (Bloomberg) — Britain’s coalition government will pull back from demands that banks specify how they will cut bonuses, according to three people with knowledge of the policy.
With banks including Barclays Plc and HSBC Holdings Plc set to announce bonus payments this month, the softening is an acknowledgement by the government that it can’t force banks in which it doesn’t have a stake to cap pay. The government will now only ask banks’ remuneration panels to take into account a need for restraint, and explain how they are responding to popular anger over pay without illustrating where or by how much pay will be cut, one person said.
The change of tone came as Chancellor of the Exchequer George Osborne yesterday increased a tax on U.K. bank balance sheets to raise an extra 800 million pounds ($1.3 billion) this year. Britain’s major lenders were angered by the way Osborne made the announcement without informing them, according to a person involved in the discussions, even though they’ve been in talks since December on bonuses and lending targets, known as Project Merlin. The people declined to be identified because the discussions are private.
“Both the government and the banks understand there is a lot of pressure from the electorate. It is merely a political smokescreen and Project Merlin won’t amount to very much,” said Tom Kirchmaier, a fellow at the London School of Economics. “In the end the bankers will get their bonuses, Osborne will get a bit more tax and everyone will be happy.”
A final deal on bonuses will be public within the next week, Treasury minister Mark Hoban told the House of Commons yesterday.
Ire at Timing
One person familiar with the banks’ position said their ire at yesterday’s announcement by Osborne was more at the timing, outside the normal framework of a budget statement to Parliament and when the Merlin talks were close to a deal, than at the sums involved. The banks’ negotiating teams called each other in the morning to check others hadn’t been informed, the person said.
Aside from the commitment on bonuses, Merlin is likely to include demands that banks disclose the pay of their most senior bankers including the chief executive and chief financial officer, one person with knowledge of the plans said. Banks are unlikely to have to reveal the pay of traders and will be asked to disclose the pay of the heads of the departments that take the biggest risks, the person said.
While negotiations to get banks to sign up to lending agreements to companies haven’t been concluded, four people with knowledge of the talks said consensus is beginning to emerge around a target of 190 billion pounds, compared with the 200 billion pounds the government was aiming for. The gross lending targets are aimed at spurring lending to small companies. The money won’t be directed toward supporting home mortgage lending, one person said.
About 1 billion pounds in equity funding will also be set aside to support lending in Britain’s regions, the person added.
The Project Merlin talks were intended to rehabilitate Britain’s banks after the previous Labour government provided support for the financial system that saddled taxpayers with 1 trillion pounds of liabilities, including a bailout of Royal Bank of Scotland Group Plc.
Prime Minister David Cameron, like Osborne a Conservative, began the year proposing a “settlement” with bankers, under which politicians would stop attacking them in return for cooperation on bonuses and lending. That was after Deputy Prime Minister Nick Clegg, a Liberal Democrat, said last year the government wouldn’t “stand idly by” if banks paid out large bonuses in 2011.
Osborne told Parliament last month that banks would not only have to cut compensation but demonstrate that they would “pay smaller bonuses than they would otherwise have done.” That statement came after other officials suggested the chancellor was backing down on steps to control pay.
A sign that the talks weren’t going well for the government came Jan. 27, when Liberal Democrat Business Secretary Vince Cable told a journalists’ lunch that, as he had sat in a meeting with “our friends,” a joke about dead bankers had jumped into his mind.
“There are two dead bodies on a motorway, one cat and one banker,” Cable said. “The difference is that the cat is surrounded by skid marks.”
High bonuses are difficult for the government to sell to the public in what Cameron warned Jan. 9 will be a “difficult” year, with tax rises, public-sector pay freezes and job cuts to help curb the record budget deficit.
London’s 300,000 financial-services workers will receive bonuses totaling as much as 7 billion pounds for this year, about 5 percent less than in 2009, according to the Centre for Economics & Business Research Ltd. That’s down from 11.6 billion pounds in 2007.
By Gonzalo Vina and Robert Hutton – Feb 9, 2011 1:01 AM GMT+0100