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Banking: Royal Bank of Scotland

Volume 724: debated on Tuesday 1 February 2011


Asked By

To ask Her Majesty’s Government whether they have any plans to limit bonuses to be paid to senior Royal Bank of Scotland staff.

My Lords, UK Financial Investments manages the Government’s shareholding in the Royal Bank of Scotland on an arm’s-length and commercial basis. The Government are clear that remuneration policies at banks need to reward long-term sustainable performance, not incentivise short-term excessive risk taking. We have made it clear to RBS that it should have a smaller bonus pool than last year.

I thank the Minister for that reply. Is there not something lacking when we cannot take firmer or more positive action in a bank in which we have 83 per cent of the shareholding? Does it not give the green light to the banks to carry on in the same way, while innocent people are losing their jobs because of the folly of the bankers, who are seen to be very close friends of this Government? The Government have talked tough and acted weak. Is there not a smell of hypocrisy about?

I am grateful to the noble Lord, because it enables me to point out that we are hamstrung in dealing with the bonus situation at RBS. The previous Government signed an agreement with RBS that did not cover the payment of bonuses this year, which means that our hands are tied. I wish they were not. It was the wholly inadequate agreement that the previous Government signed that leaves us where we are.

Lord Forsyth of Drumlean: My Lords, will my noble friend confirm that 50 per cent tax will be paid on every pound that is paid in bonuses; and that 12 per cent national insurance will be paid by the employer, plus 2 per cent by the employee? Therefore, 63 per cent of the bonuses—I think that is the right number—will come back to the Exchequer at a time when it needs revenue. If the money is not paid in bonuses, presumably it can be offset against losses and the Exchequer will receive nothing.

My Lords, indeed those numbers for the marginal rates of tax are correct. And that is not the only tax we extract from the banks—far from it. This Government have put in place a bank levy which will, when it comes into full force, raise an additional £2.5 billion out of the banking sector; a larger amount of money than was taken from the banks in the previous Government’s bonus tax.

My Lords, can I encourage the Minister to use the full resources of the Treasury to try to find a way of untying his hands? I cannot believe that there is not a way around this. Is the Minister aware that Sir Philip Hampton, the chairman of RBS, a year ago told us that over 100 Royal Bank of Scotland bankers collected £1 million? What does the Minister expect the figure to be this year? Is he aware that I and the overwhelming majority of taxpayers, who are having to pay £828,000 of every £1 million paid out to RBS bankers, believe that we are entitled to see the names on the cheques?

My Lords, the Royal Bank of Scotland is due to announce its results on 24 February. It normally makes its remuneration disclosures on or around that date, so we will have to wait. I have no knowledge of the number of bankers who might or might not be getting particular levels of bonus. Our relationship with the Royal Bank of Scotland is managed on a commercial, arm’s-length basis through UK Financial Investments.

My Lords, as has been well-publicised, the Treasury and the Chancellor of the Exchequer have been entering into negotiations with the banks on bonuses and other activities. Will the noble Lord give me a categorical assurance that the results of those negotiations will in no way prejudge, constrain or compromise the findings of the committee into banking structures headed by Sir John Vickers?

My Lords, with regards to the proposed possible settlement with the banks in Project Merlin, discussions are ongoing with the intention of seeing that the banks pay smaller bonuses than they would otherwise; that they are more transparent about their pay; that they make a greater contribution to local communities and the regional economies; that they treat customers fairly; and that they lend, materially and verifiably, more than they were planning to the businesses of Britain—especially small and medium-sized enterprise—so that they can grow and create this year. If we do not get such a settlement, my right honourable friend the Chancellor has made it clear that nothing is off the table. As to the Independent Commission on Banking, it is an independent banking commission and it will do its own thing as it sees fit.

Will the Minister clarify one of his answers in relation to the amount that will come to the Treasury this year? Will he please explain how—and when—those bonuses that are paid in shares and in a new vehicle entitled “cocos” are taxed?

My Lords, the tax rules around deferred compensation are complex and depend on the sort of instrument being paid. Some tax on certain instruments is levied up front and some is levied later, so it depends very much on the circumstances of the individual instrument and the taxpayer. But, of course, some tax might indeed be levied later on.

My Lords, will the Minister confirm that some of these millionaire and billionaire bankers, and indeed other millionaires and billionaires, use tax havens to salt away their money so that they do not actually have to pay tax to the United Kingdom Treasury? What are the Government doing to clamp down on these tax havens?

My Lords, we are doing a lot more than the previous Government ever did. We have set aside an additional £900 million of expenditure for HMRC over the next spending round—the noble Lord may shake his head but that is a fact—and that will result in millions-worth of additional revenue each year being collected compared with what the previous Government did.

The Minister has described the nature of the relationship between the Government and the Royal Bank of Scotland. Is he content with the composition of remuneration committees attached to public limited companies? Given the widening gap between the better paid and the lower paid, is there not a case for a change in the diversity of the people who sit on remuneration committees? Are the Government prepared to explore this and perhaps look at whether we could see more representative groups on remuneration committees, particularly with those in the lower socioeconomic groups being represented?

My Lords, the Financial Reporting Council continues actively to consider a range of ideas for improving corporate governance, and of course in recent months there has been the UK Stewardship Code and a revision of the UK Corporate Governance Code. I think that the Financial Reporting Council listens to all good ideas for improving corporate governance and is actively on the case.