UK government to ask banks to rein in bonuses
Monday, December 20, 2010
LONDON (AP) — British government ministers are meeting bank executives Monday to ask for greater restraint on bonuses at a time when public spending is being slashed and households’ finances are stretched.
Business Secretary Vince Cable has decried “scandalous” bonuses dished out by banks and has suggested that some form of taxation may be deployed to restrain payments.
Bankers have warned they will suffer a competitive disadvantage if Britain imposes tougher bonus rules than other countries, and say they might be tempted to move some of their operations abroad.
Cable and Treasury chief George Osborne are meeting with executives of Britain’s big banks, including two in which taxpayers hold large stakes. Banks have set aside a total of 7 billion pounds ($10.9 billion) to pay annual bonuses, the Center for Economics and Business Research has estimated.
“If they (banks) don’t behave, if they don’t take account of their wider responsibilities, the government has as a possibility some form of taxation — there are various ways of doing this — but we’d rather they accepted that they had wider obligations to British business and to the public,” Cable said in an interview with the British Broadcasting Corp. on Sunday.
Prime Minister David Cameron has said that bankers need to understand the political context when they contemplate lavish payouts while an economic squeeze puts some people out of work and pinches household budgets.
Last year, the previous government under Gordon Brown imposed a 50 percent tax on bank bonuses.
On Dec. 10, the Committee of European Banking Supervisors confirmed new rules which will cap bonuses to as little as a fifth of total pay and require a large portion of bonuses to be deferred for up to five years. Those rules will also apply to some executives of U.S. and Asian banks who have significant management roles in operations inside the European Union.
Guidelines published last week by Britain’s Financial Services Authority require that at least half of bonuses should be paid in shares or other instruments instead of cash
Cameron’s government has also proposed a tax on bank balance sheets to raise 2.5 billion pounds a year starting in 2012.
The government says the tax is partly a contribution to balancing the risks of banking activity, and to encourage more stable funding for banks.
About half of that amount will be paid by the big five banks: Barclays, Royal Bank of Scotland, Lloyds Banking Group, HSBC and Standard Chartered. The government holds a 40 percent stake in Lloyds and 83 percent of RBS.
Banks will also get some support, however, from the government’s plan to gradually reduce the rate of corporation tax.