I beg to move,
That this House has considered the Government policy on bankers’ bonuses.
It is a pleasure to serve under your chairpersonship, Mrs Cummins. It is good to hear somebody from the old West Riding, as we would call it, in charge of the sitting this afternoon. I look forward to fair but firm chairpersonship.
It was the great German playwright Bertolt Brecht who once said that, to make money from banking, set up a bank rather than rob one. People make more money that way. It is clear that there needs to be a wider debate about the role of the financial sector in the British economy, but it is good to start with the remuneration structures in the finance sector. That is what this debate is about.
The previous Chancellor’s deplorable mini-Budget, as I would insist it is called, contained a series of clearly mistaken policy shifts. Following the change in Chancellor and then in Prime Minister, almost the whole of that mini-Budget disappeared, except for one thing: the idea that we should lift or remove the cap on bankers’ bonuses. I hope that the Minister will be able to change Government policy this afternoon, following my persuasion, but we will see what he says.
We have been here before on the question of bankers’ bonuses. I want quickly to recall what happened in the 2008 banking crash. As it happened, I was working in Downing Street at the time and saw clearly that we were on an economic precipice, in part because bankers’ remuneration had been allowed to let rip. The crash almost brought down our whole economic system.
When it came time to review how the crash happened, a significant part of it was attributed to the reckless culture of greed in the banking sector, which had exposed the banks to unacceptable levels of risk. Adair Turner, the then chair of the Financial Services Authority, said that
“inappropriate incentive structures played a role in encouraging behaviour which contributed to the financial crisis”.
He is hardly a man of the left, and therefore I think his words might be regarded as authoritative.
In 2009, the all-party Treasury Committee returned to the question of remuneration. It said that remuneration in the banking industry had played a role in causing the banking crisis. It questioned whether Turner’s response was strong enough and whether
“the Financial Services Authority has attached sufficient priority to tackling remuneration in the City.”
As we know, although bankers played a major role in bringing the system to its knees, in the immediate aftermath of the crash no banker was charged with any offence, in spite of their reckless behaviour. Many people in the country, in my constituency and elsewhere—perhaps in yours, Mrs Cummins—thought that at least some of them should have served time at Her Majesty’s pleasure.
It was the European Union that eventually instituted control of bankers’ bonuses. The EU said that no banker should receive a bonus of more than 100% of their salary—though where that figure came from I do not know—or 200% if shareholders had voted in agreement. It is that cap that the Government appear to now be intent on removing.
I want to use this short debate to ask three questions. First, how much is remuneration for bankers now, 14 years after the crash? Secondly, who is suggesting that the bankers’ cap be removed and why? Thirdly, how do we justify an ethos of greed as a determining factor guiding so many decision makers in a strategically important sector of the British economy?
My hon. Friend is making a very important speech, particularly in terms of who is advocating this policy. When the previous Chancellor made the fiscal statement announcing the policy, I tabled a written question asking how many people in my constituency of Cynon Valley were going to benefit from lifting the bankers’ bonus. The response was as expected and inadequate, in that the Government said that they did not know. I wonder whether that was because nobody in Cynon Valley is going to benefit from it. Does my hon. Friend agree that the reason nobody in places such as Cynon Valley will benefit is that the ban is being lifted to benefit financiers and others in the City, when the people who should be benefitting are those in the regions of Wales, the north of England and Scotland and our essential key workers—nurses, teachers and so on?
I am grateful to my hon. Friend for that intervention. I agree with every point she made and I will develop some of those arguments as I speak.
First, I will address the question of where we are now with remuneration in the banking sector. We know quite a lot about it. The chief executive officer and chief financial officer of Britain’s largest bank, HSBC, were paid $2.2 million and $1.3 million, respectively, for 2021. The truth is that bankers’ bonuses have doubled in spite of the cap since the 2008 financial crash. According to the most recently available data, there are 3,500 bankers working in our country who made more than €1 million—£880,000—in a single year. That information comes from the European Banking Authority. Seven out of 10 of all the bankers who made more than €1 million in the whole of Europe are located in the United Kingdom. Meanwhile, 27 bankers in the UK were paid more than €10 million in a year. Two UK-based asset managers received between €38 million and €39 million in a year—I think that clearly makes the point referred to by my hon. Friend—and at the top of the pops, one merchant banker was paid €64.8 million in a single year, and almost all of that was a bonus.
Those are absolutely outrageous figures. They make me wonder why the Government feel it is necessary to lift the bonus cap at all, given the outrageous sums that are being paid.
That brings me to my second question, which was an attempt to discover who is actually pressing for a lifting of the cap on bonuses. Given the rates of remuneration I have just indicated, it would take a colossal amount of unrestricted greed for bosses in the banking sector to propose such a thing. However, according to The Guardian, sources in some of the City’s largest banks are saying, “Not me, guv. I didn’t ask for the cap to be raised.” Those bankers admitted that they were baffled by the then Chancellor’s plan, and I think that they are equally baffled by the current Chancellor’s decision to continue with the plan to lift the EU-imposed cap. The bankers said that they had not lobbied for the move, so it begins to look like this was an ideological move by the Conservative Government, who believe as a matter of faith in rewarding the super-rich with additional wealth.
The hon. Member is making an excellent speech. In my constituency of Airdrie and Shotts, 68% of people are cutting back on their essential groceries, and 65% are worried about not being able to pay their energy bills. Is it not simply the case that under the Tories the poor get poorer and the rich get richer, whether they be bankers or oil giants not paying windfall tax? Does the hon. Gentleman agree that the UK Government would do well to adopt the Scottish Government’s approach of implementing policies designed to alleviate the cost of living crisis, such as freezing rent and rail fares, expanding access to free school meals and increasing the Scottish child payment to £25 a week, rather than looking after their rich banker friends?
The hon. Lady makes a number of important points, and I agree with most of them.
I was asking whether the Government are ideologically committed to this policy, since no banker is prepared to admit that they had lobbied for it. If that is the case, and it looks like it is, there is not a single shred of empirical evidence that money can trickle down from the most wealthy to the rest of society—quite the reverse. Beyond a certain point, it has been argued that the further growth of the finance sector hampers rather than supports the real economy. One study estimated that the excessive size of the UK’s financial sector may well have cost our economy £4.5 trillion in lost growth over a 20-year period.
Turning to my third question, there is no evidence to suggest that individualised reward systems for key decision makers are necessarily for the corporate good of the institution for which they work, let alone the common good of the country as a whole. An argument that the Government have developed is that if banks pay more bonuses, they will attract more bankers who will pay more tax. A better argument would be to pay those who are on the lowest pay more money because they will spend it in the local economy and contribute to income for the Treasury.
A Government who set out public policy to raise the incomes of the wealthiest while holding down the wages and salaries of working people are totally at variance with the values of the overwhelming majority of people in this country. How can they justify the multimillion remuneration packages for a handful of people at the top when the number of food banks for working communities is growing? In any event, it seems that avarice in the financial sector is simply piling up the material for the next crash, which will come if we do not change direction fast. The Government need to abandon this policy. That is just plain Yorkshire common sense.
I want to make one further point, and I will be careful how I express it—the House will understand why. The Code of Conduct for Members states:
“Holders of public office should not place themselves under any financial or other obligation to outside individuals or organisations that might influence them in the performance of their official duties.”
I quote that because 10% of all MPs have disclosed in the Register of Members’ Financial Interests that they have monetary ties with for-profit companies or individuals in the financial sector. The same is true of one fifth of all peers. I worry about how embedded the financial sector is in this very building. Financial institutions and individuals closely tied to the banking and finance sector donated a total of £15.3 million to political parties throughout 2020 and 2021.
Returning to bankers’ bonuses, the Government need to take three steps. First, they should immediately announce that they will not lift the cap on bonuses. Secondly, they should appoint an independent commission to examine the whole remuneration structure in the UK, starting with the financial sector. Thirdly, they should make an interim announcement that there will be a suspension of all bonus payments in the City during the current financial crisis, until the independent commission that I have recommended reports.
My hon. Friend has caught my next point. In the interest of social justice, the country feels that a 2% cap on the salaries of public sector employees and the lifting of the cap on already over-remunerated bankers is the wrong way for the Government to go. I agree with the statement made last week by the former deputy governor of the Bank of England, who my hon. Friend has just referred to. He said:
“The British government should raid the banks for tens of billions of pounds to fill a black hole in the public finances”.
He argued that the combination of rising interest rates and the money printed as part of quantitative easing has handed banks windfall profits. Those profits are going towards increased bonuses, which is totally unacceptable. Surely the banks and the financial sector should work for the common good, rather than for the private interests of a handful of very wealthy people. I will now make way for the Minister, and I look forward to him attempting to defend the indefensible.
It is a pleasure to serve under your chairmanship, Mrs Cummins, and I congratulate the hon. Member for Hemsworth (Jon Trickett) on securing the debate. I accept that he is sincere in bringing forward his concern and that of his constituents, but we on this side of the House believe that he is sadly wrong.
In responding for the Government, I am grateful for the opportunity to lift the lid on what is an important but often misrepresented issue. Let me be unequivocal from the outset that the Government are unapologetic about our commitment to the financial services industry, which stretches across the whole of this great nation. If the hon. Gentleman cares to talk to his Front-Bench colleagues, he will find that the policy of both Front-Bench teams is to support the sector in order to help grow our economy and create the prosperity from which we all benefit.
Does the Minister accept that I am not speaking on behalf of my Front-Bench colleagues? I am speaking about the views of my constituents and others across the country, and in the interests of what I believe the country should be doing. The Government are clearly wrong, whatever those on the two Front Benches are proposing.
It is always a pleasure to hear a Member of this House speak on behalf of their constituents, which is indeed what we are here to do. I stand corrected by the hon. Gentleman: this debate is not about the policy of Opposition Front Benchers. I just thought it was worth setting that in context, because where there is consensus, we should build on it. I understand his views, but the scale of the sector’s contribution to the United Kingdom is truly massive.
Financial and related professional services, and all those that are engaged in the support functions, make up 12% of the UK’s gross value added—12% of the economy. That is millions of jobs, and not just in the City. Indeed, I actively push back against the idea that I am the City Minister, because that is not the case. The financial sector has to build bridges and reach into every household across the country. To that point, the hon. Gentleman is probably aware from talking to his constituents that there are 145,000 jobs in the financial sector and related industries in Yorkshire and the Humber, and long may that continue. Those are the sorts of high-quality, high-skilled jobs that I am sure he seeks for his constituents, for our generation and for generations to come.
The sector produces prodigious amounts of tax revenues—billions of pounds—without which our public services would be in peril. Because of the financial services sector, I can look our hospitals, schools, police, fire services and all of our brilliant, fabulous public servants in the eye. The hon. Gentleman might tell us that they do not get enough revenues, but one of the ways in which we can continue to make sure that they are sustainably well financed is on the back of the very bankers he decries, and my mission is to continue to grow this wonderful sector.
I return to the subject of the debate: the bonus cap. Although many people are confused about what the bonus cap is, I know that the hon. Gentleman has followed this topic and is not confused. It is not a cap on bonus pay. If he would like to introduce such a measure, Parliament offers many wonderful opportunities for him to do so, including ten-minute rule Bills and Backbench Business debates. If he would like to propose a cap on bonuses, I am sure that the House would be keen to hear more about how such a cap would work.
I think the hon. Gentleman knows that what we are talking about is not a cap on bonuses whereby fixed pay is inflated and bankers are paid the egregious amounts that he talks about. This did no such thing. It was simply about the composition of pay and how much of it is geared to performance versus a mere entitlement or fact of contractual law. It has never been a cap. The EU directive that the hon. Gentleman talked about relates to the ratio of fixed pay to bonuses. At no point has there been a cap. To be in favour of the status quo is actually to be in favour of higher basic salaries for bankers. Perhaps we should have renamed this debate, “The debate about higher basic salaries for bankers.” We may have got more bankers to come and watch, but I am not sure how many hon. Members would have clamoured to support a debate about higher basic pay for bankers. This is a really important point. The hon. Gentleman himself raised the fact that since this so-called cap was introduced, we have actually seen an increase in pay. If it was a cap, by its own definition it has failed.
The consequence of all this is that by removing restrictions, more of bankers’ pay can be performance-based. If they do not perform, perhaps their salaries will go down and perhaps the hon. Member’s objectives would be achieved by the very measure the Government have advocated. We would be removing the insistence on higher fixed pay, and more of it would be based on performance. If they do not perform or grow the economy, and if they do not contribute the near 50% share that the bankers will typically be paying in tax to our nation, then their salaries will go down. I would offer that to the hon. Gentleman as a reframing of how he thinks about this.
This is a common remuneration structure, not just in this sector but elsewhere in the economy. It is how many industries align performance and incentives in a sensible way. I have heard the argument that removing what we have now established as a so-called bonus cap will see a return to the bad behaviour and perverse incentives that led to the global financial crisis. The hon. Gentleman was there at the heart of that in No. 10, and I can understand that experience, but things have moved on—not just in respect of this cap, but the fourth European directive.
At that point there was no broader remuneration framework for bankers. They could get their entire variable pay on the day it was awarded. There was no element of deferral or additional regulatory requirements, such as those imposed by the Prudential Regulation Authority and the Financial Conduct Authority, to require a significant proportion of variable remuneration to be deferred for a number of years. In those years, firms are able to revisit performance and material events or misconduct and then take account of those within the remuneration framework. Since the hon. Gentleman’s service in No. 10, we have seen the introduction of the senior managers regime, which has even greater accountability.
The point is that the regulatory structures have evolved. They were right to evolve in the aftermath of the global financial crisis, but the reforms that work do not include this arbitrary and variable remuneration ratio.
The Minister will have heard me talking about a person in the City being remunerated £68 million in a single year. Of that, £200,000 was the basic pay, and the rest was bonus. I think the Minister is resting his case on the expansion of basic salaries, but that is not the case for that person. It would take the average person in my constituency 2,260 years on an average salary to achieve what that person achieved in a year. Is that possibly morally justifiable?
The hon. Gentleman needs to make peace with the benefits of a capitalist, free-enterprise, private, risk-taking economy. I understand that that is a certain distance for the hon. Gentleman to travel. Perhaps we do not have enough time this afternoon for the hon. Gentleman to travel all that distance. By his own admission, he chose the most extreme of the most extreme cases. I celebrate, because in that example, his, mine and your constituents, Mrs Cummins, would be better off to the tune of £34 million, from that single, most productive of financial services employees in that year putting that money back into the Exchequer. I sincerely hope that is absolutely the case, because the Government have made a great endeavour to collect all the tax revenues owed.
I will shortly conclude, but earlier the hon. Gentleman seemed to decry the fact that seven out of 10 of the most highly paid bankers in Europe were based in London in the United Kingdom. I think the very opposite. The Government’s view is that, if not seven, it should be eight, and that we should seek to obtain those revenues and grow our economy, reinvesting in the productive and public services.
At the beginning, the hon. Gentleman made great play that this was one of the few surviving measures of the mini-Budget, the then growth plan. I cannot leave that lying on file, because the biggest single measure, which all our constituents benefit from right now, as the nights grow colder and the temperatures plummet, was the £60 million—
Sixty billion pounds—a little more than bankers’ pay. That is now flowing into individuals’ heating, fuel and energy bills, protecting every one of our constituents, up and down the United Kingdom. This was not the sole surviving measure that the hon. Gentleman talked about. This was a sensible measure, part of taking an inherited European rulebook that never fitted the fact pattern of the United Kingdom. That is why the Bank of England and the Liberal Democrat part of the coalition all made great protestations at the time that the fourth European capital requirements directive was introduced, because it did not fit the unique fact pattern of the United Kingdom.
Let me conclude. I pay tribute to the hon. Gentleman for bringing these matters to the House. It is absolutely right that we talk about this and understand how we are going to drive our economy forward in the fairest possible way. The City, I hasten to remind him, has a significant duty to society, and must be connected to every part of the United Kingdom, even our wonderful Administration north of the border. The Government’s position is that the measure is the right one. The hon. Gentleman asked whether the Government stood by that. It is the case, because we want a productive economy and people to be paid what they earn, but no more than is warranted. That is why we continue to stand by the measure.
Question put and agreed to.