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An interesting election result in Hastings
While the Tories held their St Helen's council seat in Hastings in the by-election yesterday, Labour's share of the vote rose considerably. In 2008 Labour received 24% vs 59% for the Conservatives (on a 50% turnout). Yesterday, on a turnout of 37%, the Tories won with 41% of the vote but Labour's share increased to 37%.
The LibDem vote fell from 17% to 14%. This time around there were two other parties standing - the BNP (6%) and English Democrats (2%).
We shouldn't draw too many conclusions from a single result (apart from credit to the Labour campaigners) but it appears that in hard-fought Hastings the Tory vote is vulnerable and the LibDem vote appears to have been squeezed. |
Stephen Beer, 11/12/2009 |
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The outcome of the UK tax on bank bonuses
The new UK tax on bank bonuses announced by Chancellor of the Exchequer Alistair Darling on Wednesday finally introduces some clarity into the debate about bank bonuses. There had been much speculation about what form such a tax might take. Now we know. Might there be some unintended consequences?
The new tax is not a supertax on the income of individuals receiving bonuses, but rather on the bonus pool in any given bank. The aim is to act as a discouragement to banks to prevent them redistributing some of their profits into excessive bonuses when those profits have been made possible by government intervention, both direct and indirect. Some banks may choose to increase the bonus pool to compensate but this would probably not go down well with shareholders. The tax is only effective for one year.
Some people have argued that this measure will push banks to operate overseas, or because they will not pay large bonuses that they will lose personnel. However, the tax is temporary and any such impact might be mitigated by similar measures elsewhere - for example France is to impose a just such a tax. Alistair Darling has not had the last word on bonuses.
Yet it is surprising that the UK banking sector hasn't just hunkered down for a while, sorted itself out, involved its stakeholders in setting new ethical codes, and consulted with shareholders about what banking should look like in future. It is this apparent lack of gratitude towards the taxpayer, and lack of appreciation of what bank actions have done to the wider economy and peoples lives, that stokes anger against banks in this country and around the world. That's not healthy for anyone. |
Stephen Beer, 11/12/2009 |
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Bank bonuses and linking banks with the rest of society
Should there be a windfall tax on bank bonuses? That's what's being reported as we approach the Pre Budget Report this coming Wednesday. There may be a good case but what matters more is how we improve banks relationship with the rest of society.
Investment bankers are expecting to receive large bonuses after a very profitable year. Those profits have come about because (on behalf of taxpayers) governments:
* took large stakes in banks to inject capital;
* guaranteed bank lending;
* lent money at reasonable terms to banks;
* insured almost all of banks toxic assets (the main cause of the problems);
* and with interests at historic lows in effect printed money and pumped it into the financial system.
If a frontline investment banker is not making money in this environment they may be in the wrong job.
So it's no surprise that the case for a windfall tax has gathered support (for example see Martin Wolf in the Financial Times). There is a certain justice about it, since the bonuses could not have been considered had taxpayers (including many now out of work as a result of banks' actions) not bailed out the banks.
It might be difficult to enforce because a competitive environment does exist. So a system-wide problem can be hard to solve without some level of international cooperation. And bonuses are not in principle wrong - many people in different industries earn bonuses. It depends on whether they are properly linked to performance (without being helped by taxpayers) and whether they are particularly out of proportion. There is scope for some government action to ensure taxpayer support is not being creamed off into individual pay packets.
But banks should be encouraged to be more rooted in our society. The time is surely right for some sort of Community Reinvestment Act - something which has been in force in the US for years. Banks should be required to invest in local communities. The Cooperative Party is promoting the idea. It won't prevent another crisis but it might help refocus banks and promote a long term sustainable banking model. |
Stephen Beer, 06/12/2009 |
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Pay bankers with toxic assets
The controversy over Royal Bank of Scotland bonuses has highlighted that those bonuses only exist because the UK taxpayer owns most of the bank, is standing behind RBS so that it won't fail again, and has required the Bank of England to print money to make life easier. The taxpayer is also insuring £240bn of RBS's toxic assets via the Asset Protection Scheme, which sees the taxpayer's interest in RBS rise from 75% to 84%. The taxpayer is insuring the value of the securities which got RBS into a mess in the first place.
Here's a suggestion I heard - rather than pay bonuses based on current profits, which come from taxpayer support, why not pay bankers in the original toxic assets?
That way, some risks can be transferred from the people of Britain to a pool of people who ought to know all about risk. The toxic assets would have to be held for the long term - perhaps until they mature. The bankers could stand to make a great deal, which would be a reward for the risks. Or they may make little at all. But it would link bonuses with the risks the bank(s) took and the long term health of the financial system - not just that part of it supported today by taxpayers.
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Stephen Beer, 03/12/2009 |
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Royal Bank of Scotland bonuses and why the Treasury has to examine itself
How bizarre are reports that the board of Royal Bank of Scotland has told the government that members might resign en masse if the main owner - the taxpayer - insists it controls the level of its bonuses. They have stirred up once again the still fierce public anger against the banks, showing that they really just don't 'get it'. But should the Treasury examine itself over this matter?
When RBS got into trouble a year ago and the taxpayer stepped in and bought a majority stake (around 70%), the board members were changed. In those days of stress and panic, the Treasury took the view that it really didn't like holding stakes in banks: it would act as if it was just another institutional shareholder. This was formalised with the establishment of the UK Financial Investments to manage the peoples bank shareholdings. For some reason, the Treasury believed it should keep UKFI at arms length.
While some institutional shareholders regularly oppose excessive executive pay for example, most do not do so often enough. But when you own 70% of a company, you really cannot be an arms length shareholder. You have to be involved.
The problem with behaving in the way you think an institutional shareholder would behave is that you will end up acting in a pre-crisis manner. The news is the world has changed.
The RBS board apparently believes that it is not in the interest of shareholders (mostly the taxpayer) for the government to interfere in bonus arrangements. Yet such bonuses can only happen because the government supports the bank and because the taxpayer has injected billions of pounds into RBS. Indeed, the board risks its objectives (its interpretation of fiduciary duty) by its state of denial, since that may encourage calls for harsh regulation or nationalisation.
Both sides seem to be backing down to some extent. But this incident does illustrate that the banks need institutional reform because they are incapable of reforming themselves. Their worldview was destroyed by the financial crisis, yet they carry on with 'business as usual'. RBS today should not be like the RBS of two years ago. That is why government action is so important. |
Stephen Beer, 03/12/2009 |
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