Bankers’ Bonuses and the Banking Industry

Liz McInnes Excerpts

Wednesday 25th February 2015 Commons Chamber

[Liz McInnes (Heywood and Middleton) (Lab)]

As the motion states, we believe bonuses should be a reward “for exceptional performance” and not a compensation for failure. This applies in other industries and it should in banking, too. Many industries, particularly those in the public sector, manage to get by without awarding bonuses. In industries such as banking, where the bonus culture does exist, there needs to be more accountability. Pay must be more closely linked with long-term performance.

[Chris Evans]

Does my hon. Friend have sympathy for the high-street bank worker, who has had nothing to do with the scandals, but has often had to take abuse from customers for them? As someone who worked in a bank, my hon. Friend will know that these same high street workers are under strong pressure to achieve sales targets and that when they do not, they often face disciplinary action. Does she think that is fair, particularly when the senior executives are taking such massive bonuses?

--- Later in debate ---

[Liz McInnes]

I thank my hon. Friend for his series of questions. I will try to answer them in the order he asked them. I think my hon. Friend alluded to my having worked in a bank—

[Chris Evans]

I worked in a bank.

[Liz McInnes]

It was my hon. Friend who worked in a bank; now I understand. My two elder sisters both worked in banks and both were forced out because of the selling culture overtaking the “service to the customer” side of banking, so I fully understand the plight of the ordinary bank worker and the pressure they are under, not to mention the abuse they sometimes suffer because of misunderstanding on the part of the general public about the role of ordinary workers in banking. I thus fully appreciate my hon. Friend’s points, and I hope that answers his questions adequately.

I was referring to the scandals over the last year, most recently, as we are all aware, at HSBC. Regrettably, it looks like this year’s round of bank bonuses will be very generous once again. That is why Labour is determined to repeat its tax on bankers’ bonuses in order to fund a paid starter job for every young person out of work for more than a year. We will also extend clawback of bank bonuses that have already been paid, where inappropriate behaviour has come to light, to at least 10 years.

This Government have not done nearly enough to rein in excessive pay and bonuses. They have refused to repeat Labour’s tax on bankers’ bonuses and they have stopped short of implementing all the recommendations of the Parliamentary Commission on Banking Standards. Instead of repeating Labour’s tax on bankers’ bonuses, the Chancellor of the Exchequer has instead wasted taxpayers’ money by mounting a misguided and ill-fated legal challenge to the EU cap, which limits bonuses to 100% of salary—or even up to 200%, with shareholder approval.

The next Labour Government will guarantee a job for all young people on unemployment benefits for over a year and also for all adults aged 25 and over who are on unemployment benefit for over two years. This is the only policy we will fund with the proceeds of the bank bonus tax.

Being unemployed when young really damages prospects years into the future, so this is an important policy for Labour to champion. According to the latest labour force survey, youth unemployment stood at 740,000 in the three months to December 2014—an increase of 3,000 in comparison with the last quarter. Research shows that young people unemployed for a year will, on average, be £125,000 worse off over their working lifetimes. That means someone on the average wage would have to work nearly six years longer to make up for the cost of being unemployed when young.

The performance of the banking sector is vital to the health of the UK economy. The finance and insurance sector makes up around 8% of the total UK economy, employing more than 1 million people who carry out essential roles working with businesses and consumers to manage their money and ensure that they are able to invest, make profits and plan for the future. Too often in recent times, however, banks have continued to pay high bonuses in the face of falling profits and falling standards. This has led to a level of pay and bonuses to some highly paid bankers that has become disconnected from banks’ performance and their wider economic contribution.

Last year saw a marked increase in the level of bonuses paid by banks, with three out of four major high-street banks increasing their bonus pool in comparison with the previous year. While thousands of bank employees, along with millions of other taxpayers, are struggling by on modest salaries and face a rise in the cost of living, those at the top are benefiting from high bonuses, reinforced by the Government’s tax cuts for the top 1%.

Bonuses have remained high in the face of a series of high-profile scandals. Barclays, HSBC, RBS and Lloyds have paid £1.5 billion in compensation for mis-selling interest rate hedging products. Other recent scandals include HSBC’s role in facilitating tax avoidance, the LIBOR fixing scandal and the mis-selling of payment protection insurance. At the same time, however, many banks are failing to fulfil their core functions. Lending for businesses has fallen by £55 billion since 2010, with several Government lending schemes having little impact. Labour believes that action is needed to ensure that banks act with greater restraint, that pay mirrors performance and that bonuses can be clawed back for up to 10 years in cases where malpractice has come to light.

Following the LIBOR scandal, the Parliamentary Commission on Banking Standards examined how the culture of the banking sector should be reformed. Although this led to some important reforms, such as the introduction of a ring fence between investment and retail banking, the Government’s implementation of the recommendations has too often fallen short. The Government have also failed to implement the institutional reform we need around access to finance, such as the setting up of a proper British investment bank, which could provide vital financing to small and medium-sized businesses and start-ups.

The banking sector plays a vital role in the UK economy. As the global financial crisis showed, the dislocation of the banking sector undermines the whole economy. Financial incentives for bank employees need to be better linked to the long-term stability and performance of their banks.