Youth Unemployment and Bank Bonuses

David Ruffley Excerpts

Monday 23rd January 2012 Commons Chamber

[Mr David Ruffley (Bury St Edmunds) (Con)]

Youth unemployment and bankers’ bonuses are both too high, and the Opposition hope that by taxing the latter they can help the former. Let us first agree that help for the young unemployed is vital. The scar of joblessness destroys self-respect and will also damage the long-term economic growth rate of this country. What are the Government doing about it? They have already announced a record number of apprenticeships—440,000 in this Parliament—as well as a £1 billion youth contract and more than 250,000 more work experience places. The proposal for a tax on bankers’ bonuses is what I want to focus on. My starting point is that crony capitalism and big financial rewards for failure not only are morally offensive but they subvert the principles on which successful capitalism depends.

[Jake Berry]

Let me pick up on the point about things being morally offensive. We have heard about the Leader of the Opposition calling for Fred Goodwin’s knighthood to be removed. Does my hon. Friend agree that if that happened it would also make sense for former Labour Cabinet members who were part of the Government who led to this bankruptcy for Britain to give up their peerages in the other place?

[Mr Ruffley]

That is an interesting suggestion. I also think that the former Prime Minister should make a personal apology when our Prime Minister, who is an infinitely better one, strips Sir Fred Goodwin of that ill-deserved knighthood.

Currently, there are excessive bonuses within the sector that give capitalism a bad name. They have fostered the belief that there is a class of people who pay themselves pretty much what they like while the rest of the country has to deal with the consequences of what many of those people served up to this country by way of financial crisis. The idea that this is something that Conservatives are casual about is utterly false. The speculation by the Mayor of London about what the greatest pro-enterprise Prime Minister of the previous century would have thought of today’s sorry state of affairs was interesting. He said that we should ask

“what Margaret Thatcher would have thought of a system where directors sit on each other’s “remcoms”—remuneration committees—and defend each other’s expanding awards, even when the directors in question have presided over commercial disaster of one kind or another. She would have thought it was absurd.”

All Conservatives think that is absurd and that something must be done about it. We think that two things should be done. First, we want to encourage people of talent to come to the UK, stay here and make the City of London the greatest financial capital on planet Earth. The second thing we need to do is foster a regime in which performance is more closely tied to reward. Quite frankly, that is not extant.

I suggest that a new blanket tax on bankers’ bonuses would undermine those aims, or at best do nothing to advance them. It would do nothing to distinguish between cases in which an executive had genuinely earned a reward by turning around a failing organisation, increasing profitability or increasing returns to shareholders, and cases in which executives had taken advantage of lax scrutiny to take excessive rewards for their failure. There is a distinction between the rich and the undeserving rich, of whom Sir Fred Goodwin is a terrible exemplar.

[Geraint Davies]

The hon. Gentleman talks about bankers, but he will be aware that among the FTSE 100 companies, there has been an average 49% increase in directors’ pay, and many of those companies have not had a proportionate increase in share value or profitability. Is he saying that his Government should introduce specific measures to cap pay increases for non-banker directors of FTSE 100 companies? If he is not, he is saying nothing.

[Mr Ruffley]

I am not suggesting that for a minute, and if the hon. Gentleman bothered to read the motion, he would see that it relates to excessive bankers’ bonuses.

The fact remains that we have to be careful when we talk about a tax on banking. My right hon. Friend the Chancellor sensibly introduced a levy on bank balance sheets, something that the Labour party was not prepared to do. We were one of the first countries in the world to do that, and it will raise more than £2.5 billion a year. Instead of introducing another tax as the motion proposes, we should do more to discourage the granting of excessive bonuses in the first place. That would have a very happy by-product. When Robert Jenkins gave evidence to the Treasury Committee last week—for those who have not been initiated into these affairs, he is a member of the interim Financial Policy Committee, and a former banker—he said something very interesting:

“Every £1 billion of less bonus would support £20 billion of additional small business lending.”

I defy anyone on either side of the House to deny the wisdom of that.

I am talking about the unjustifiably excessive bonuses paid to executives in banks that have failed or are failing. Stephen Hester is, we are told, looking to accept a bonus for 2011, despite the fact that his bank’s share price has fallen out of bed. Eric Daniels, who was the chief executive of another failed business—Lloyds-HBOS—took seven-figure bonuses before he was booted out. What the Labour party needs to understand is that that culture, which we all deprecate, did not grow up in the past 18 months. I hope that Labour will show a bit more humility in this debate than it has done so far. It did not regulate the banks properly; it sat by while these bonuses were being paid, year after year; and it gave knighthoods to the miscreants who accepted them. Incidentally, it was the Labour Government who allowed some private equity bosses to pay very little tax—less tax than the cleaners in their offices. We shall therefore take no lessons from Labour on regulation and on what we do about a state of affairs that I think we all agree is unacceptable.

Shareholders are not doing their job sufficiently well; that is why I urge the Government to change the law so that the threshold for shareholder approval of remuneration packages is shifted from 50% to 75%. I know that Fidelity, one of the largest holders of shares in UK banks, strongly supports that. Also, fund managers do not have much incentive to think in a long-term fashion; that is why I hope that the Financial Policy Committee, when it is up and running, and the Prudential Regulation Authority—the new regulator—will ensure that the Financial Services Authority’s remuneration code, which covers only 2,500 firms, covers very many more. Bonus clawback—clawing back money given to executives who depart in disgrace and failure—is something that the Government need to talk about. Lloyds is apparently looking into that.

More tax is not the answer; better regulation, under this Government, is.