Bankers’ Bonuses and the Banking Industry

Debate between Helen Goodman and Chris Evans

Wednesday 25th February 2015 Commons Chamber

[Helen Goodman]

My hon. Friend is absolutely right. The extortionate charges put on the most vulnerable have been a total disgrace and there is something interesting to say about why a significant proportion of people in this country are unbanked. That is generally put down to being about the high lending risk in that community. It is partly about that, but it is also about the costs of having the institutional infrastructure to reach that community. That is one area where the main high street banks have failed disastrously in this country.

[Chris Evans]

My hon. Friend might know about the basic bank account, which was introduced when I worked in a bank. It allowed people on benefits to pay in their jobseeker’s allowance. There was no credit scoring for overdrafts, credit cards or anything like that. People would pay in their benefits and they would be largely forgotten about by the banks. There would be no account management, and if those people needed to borrow, they would fall into the hands of the payday lenders. They were completely ignored. How do we ensure that banks manage these people into mainstream banking as their needs change—as they get a job, look for a house or something similar?

[Helen Goodman]

Gosh, I am not sure that I have an instant answer to that complex question. This is the kind of thing that we need to think about more. When we hear that in the middle of the financial crash bankers phoned Treasury Ministers from New York worrying about their bonuses and not about the kind of people my hon. Friend has just described, we are bound to say that there is a culture problem in this industry. I also want to say something about the problems that—[Interruption.] The hon. Member for Dover (Charlie Elphicke) needs to show a little more respect.

I want to say something about the need to provide more finance to manufacturing. One thing I am really puzzled by is what performance these bonuses are for. I have a lot of metal-bashers in my constituency and in the middle of the crash they had a lot of problems with their banks. I am sure that other hon. Members will have experienced this. They thought it was absolutely dreadful because they had to drive all the way down to Leeds, and blah-di-blah-di-blah.

The problem with that is that the assessments were being made by people with no scientific understanding and with very little understanding of industry. We are seeing phenomenally high bonuses for people who are no doubt absolutely brilliant and a whizz at the latest hedge fund hoojimaflip and at how to make four more basis points, but who are not very good at what they really need to be good at, which is understanding the financial needs of British industry. That is what we want, but that is not what we are getting. That is why the Opposition are proposing a British investment bank with regional arms and regional focus. The industrial base in the north-east is clearly different from that in London, so we need different expertise in different places. We are just not seeing that in the banks at the moment.

It is alarming that Lloyds, which is 24% owned by the taxpayer, is expected to have a bonus pool of £375 million this year. I could not understand the remarks made by the Economic Secretary. I think she said that no one at Lloyds was going to get a bonus of more than £2,000 this year, but my understanding is that the chief executive could receive more than £7 million in a three-year pay deal. I hope that the Exchequer Secretary will explain whether people will be getting £2,000, several hundred thousand pounds or millions of pounds. RBS, which is 79% owned by the taxpayer, was fined £400 million for its part in the forex fixing scandal, yet it is reported to be considering a bonus pool of around £500 million. There is a general problem with the culture of the banks and the level of bonuses being paid, but there is a specific problem with banks in which we the taxpayers have large equity stakes. Treasury Ministers have a particular responsibility to look at what is going on in those banks and to think about how they are going to control it, in our interests as shareholders as well as our interests as taxpayers.

I wonder what Ministers think about the report in the Financial Times yesterday, headlined “Rothschild eyes early bonus round to avoid possible windfall tax”. It stated:

“Rothschild, the boutique investment bank,”—

for those of us who had never heard of Rothschild—

“is considering paying its 2014 bonuses early to avoid the extra taxes Labour has vowed to introduced if it returns to power, two sources familiar with the bank’s thinking said. The deliberations show how seriously businesses are taking the prospect of Labour winning the May 7 election”.

Those people are good at assessing risk, and it is clear that they are expecting a Labour Government.

It is worth thinking about the purpose of the banking system. It is a shame that the Economic Secretary is no longer here, because I am sure that she has seen the book produced by the Church of England, “On Rock or Sand”, in which the Archbishop of Canterbury writes an extremely interesting essay about economic purpose. He says that there are three criteria against which economic institutions should be judged. The first is fairness, and we can see the problem in the banking sector in that regard. The second is generosity, but that does not mean that banks should be generous to those who have the most. The third is sustainability. Judging by what is happening at the moment, the institutions seem to be failing on all three counts. However, taxing bankers’ bonuses and rechanneling the money towards providing employment for young people would help banks to meet those criteria, and that is what we are proposing to do. I believe that that is what people in this country expect from the financial institutions.