Bloomberg News

U.K. Banks Should Pay Lower Bonuses to Mend Finances, Clegg Says

January 23, 2012

Jan. 23 (Bloomberg) -- U.K. banks should pay lower bonuses and retain the money to help strengthen their balance sheets, Deputy Prime Minister Nick Clegg said.

“If it was left up to me, and probably up to you, and probably up to many people watching this program, we wouldn’t have any bonuses, particularly in the state-owned banks while they are still being repaired” after the financial crisis, Clegg said in a television interview on the BBC’s “Andrew Marr Show” yesterday. “If there is no change in the bonus behavior this year compared to last year, of course I would be outraged. It’s not going to happen.”

With the bank bonus season beginning next month and the prospect of large sums being paid to financiers at a time when many Britons are enduring pay freezes, U.K. Prime Minister David Cameron is seeking to placate voters while implementing the biggest budget cuts since World War II. Cameron said last week that cash bonuses at state-controlled Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc will be limited to 2,000 pounds ($3,115).

“We’ve been very, very clear that in RBS, and for that matter in other banks, the bonus pool has to be considerably lower than last year,” Clegg said. “Any money that is spare should, where possible, be used to repair the banks’ balance sheets.”

RBS may pay investment bankers a total of about 2.5 billion pounds, including pay, perks and an estimated 500 million pounds in bonuses, the Sunday Times reported yesterday without saying where it got the information. The bank’s 2010 bonus pool was about 950 million pounds, a 27 percent reduction from 2009. The Edinburgh-based lender required a 45.5 billion-pound rescue from taxpayers in 2008, the world’s biggest bank bailout.

Reforming Taxes

Clegg, leader of the Liberal Democrats, the junior partner in Cameron’s coalition administration, said the government should be “bolder” on reforming the tax system as high inflation and weak wage growth squeezes voters.

Business Secretary Vince Cable, who has previously said owners of properties worth more than 2 million pounds should pay an annual levy, said a so-called mansion tax is “very much on the agenda,” the Sunday Telegraph newspaper reported yesterday, citing an interview.

“We think that is part of a patchwork of measures which would over time make the tax system fairer because it would ask people who have got very considerable wealth to make a greater contribution,” Clegg said, referring to the proposal.

‘Hard-Pressed’

“I want this government to be absolutely rooted in the central ground of British politics on the side of hard-pressed, hard-working families,” Clegg said. “The tax system shouldn’t be constantly catering for a very small fraction of people at the top.”

The deputy prime minister also said he supported Work and Pensions Secretary Iain Duncan Smith’s proposal to cap the total amount of welfare benefits paid to individual households. Parliament’s upper chamber, the House of Lords, will today debate the proposed 500-pound-a-week limit, a measure Duncan Smith says will encourage people into work.

“The central argument, which is one that I fully support and I completely back Iain Duncan Smith on this, is to say it surely can’t be fair, it can’t be right, that you can be earning more on benefits that someone going out and earning 35,000 pounds,” Clegg said.

Reports last week showed Britain’s unemployment rate rose to 8.4 percent in the three months through November, a 16-year high, and consumer confidence dropped as the government cuts spending to tackle a budget shortfall.

U.K. GDP Growth

The U.K. economy probably shrank in the fourth quarter for the first time in a year, with gross domestic product falling 0.1 percent from the third quarter, when it rose 0.6 percent, according to the median of 33 forecasts in a Bloomberg News survey. The Office for National Statistics will publish its report at 9:30 a.m. on Jan. 25 in London.

“We need urgent action on jobs and growth now to prevent stagnant growth and rising unemployment carrying on into 2012,” Rachel Reeves, a spokeswoman on Treasury issues for the U.K.’s opposition Labour Party, said in an e-mailed statement. “Of course we need tough decisions on tax and spending cuts, but to successfully get the deficit down we also need to get our economy moving again.”

In a speech in northeast England today, Cameron will say new business startups are “critical” to Britain’s economy. He will also announce plans to allow small businesses to utilize under-used and empty government buildings to help them expand, a spokesman said in an e-mailed statement.

Opinion Poll

Labour has lost its opinion-poll lead, drawing level with the ruling Conservative Party as support for opposition leader Ed Miliband drops, according to a poll.

The proportion of people who said they would vote for Labour in a national election has dropped 2 percentage points to 38 percent since a survey in December. The same proportion would back the Conservatives, according to the ComRes Ltd. poll. Support for the Lib Dems rose 1 point to 11 percent. The proportion of respondents who disagreed Miliband was a “good leader” climbed 1 percentage point to 53 percent from December, the poll found.

ComRes surveyed 2,050 British adults in the two days through Jan. 19 for the Sunday Mirror and Independent newspapers for the poll. It didn’t provide a margin of error.

--Editors: Will Hadfield, Francis Harris

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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