Sunday 5 September 2010

Could George Osborne really stand on his head over disclosing bank pay?

The Sunday Times reports - Tories lose nerve on bank bonuses - that George Osborne is looking at weakening the recommendations on disclosure of bankers' pay, after criticising them for being too weak when they were published. His Cabinet colleague Vince Cable called the recommendations "an embarrasing mouse of a report".

The report [Times paywall] is sourced to the Treasury. If accurate, it could be part of a softening-up exercise for perhaps the most brazen u-turn yet from the new government.

Although part of the Financial Services Act passed in the final days of the last parliament, no detail on the new disclosures was agreed. According to Treasury sources, Osborne is “reviewing” the measures following an intense lobbying campaign by some of the giant international banks. Some level of pay disclosure is expected, but it is likely to fall short of the original recommendations.

Any Treasury softening of the Walker recommendations would be extremely embarassing for the Liberal Democrats. Business Secretary Vince Cable could not credibly defend a weakening of the recommendations, refusing to mince his words in setting out why these were far too weak, telling the Commons last November

There was incredible embarrassment, in the Government and elsewhere, at the whitewash that Sir David Walker has produced on disclosure. The idea that what he calls high-end staff who are highly paid should not be individually identified is a very strange one, because we already have explicit exposure in several cases ... Sir David Walker has produced an embarrassing mouse of a report that has clearly embarrassed the City Minister.

Cable's case was a cogent one - particularly in noting the discrepancy with existing disclosure requirements on company directors - and widely shared. This led to the Treasury proposing to extend the Walker proposals to cover earnings over £500,000, with disclosure bands in £500,000 increments to £5 million plus. (Cable called for the starting figure to begin at the Prime Minister's salary benchmark).

One option now being considered by Osborne is to keep the £500,000 starting figure - but then to scrap all of the disclosure bands above it. The effect will make the information highly uninformative for shareholders, regulators and the broader public. The banks would see that as a significant lobbying victory.

But this is not just a question of Coalition management. Liberal Democrats inside and outside the government should be able to argue that this is a credibility test for both Coalition parties - on an issue which is going to hit the headlines during bonus rounds again this Autumn and next Spring, when the public and the media will naturally ask whether anything has changed.

As the Sunday Times notes:

When Walker’s proposals were debated in parliament last November, Osborne suggested they did not go far enough and called for all high-paid bankers to be named.

Here is what Osborne told the Commons, on 26th November last year:

As we will debate the Second Reading of the Financial Services Bill on Monday, I will not dwell on it today, except to comment on the Walker review published this morning Everyone wants the boards of banks to do their job better and to understand more fully the risks that they are running. We do not want a repeat of what happened at the Royal Bank of Scotland, where an all-powerful chief executive went unchallenged by his own board, by Government regulators, and by a Government who instead chose to knight him for services to banking.

I spoke to David Walker this week, and we support his plans to shake up the bank boards and improve their risk controls. We also support his proposals to make those banks disclose the number of their employees who are on high salaries. What happened to all the talk from the Government that they would disclose people's names as well? Lord Myners said just two months ago that the pay and the identity of the highest-paid bankers would be disclosed by the Government. However, when asked about that on the radio this morning, David Walker said that

"the idea being canvassed by Lord not supported by a shred of evidence of the kind that I am interested in."

That is not what one would call a ringing endorsement of the Chancellor's City Minister from the Chancellor's City adviser. Perhaps Lord Myners will be the next GOAT to slip the tether. When it comes to the Government and the banks, surely the public are entitled to ask why the Government talk tough and make promises, but then fail to deliver. As we wait to see bonus payments over the coming months, we will remember the Prime Minister's promise that the era of the big bonus is over

When bonus payments are revealed, George Osborne knows that the public will remember how own promises to be much tougher on these issues than his predecessors.

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