Bankers’ Bonuses and the Banking Industry

Debate between Mark Garnier and Cathy Jamieson

Wednesday 25th February 2015 Commons Chamber

[Cathy Jamieson]

I thank the hon. Gentleman for giving some clarity. He is absolutely right that regulation is part of the process, but we also need a culture change and an attitudinal change. He is correct to identify the lack of prosecutions. Although that is not mentioned specifically in the motion, I recommend that he reads Labour’s document, which takes account of that point. Our agenda is not entirely punitive, because it is driven by economic imperatives. We all know that the performance of the banking sector is vital to the health of Britain’s economy. It employs more than 1 million people, each of whom has an important role to play in advising businesses and consumers, and helping them to manage their money, invest wisely and plan for the future. Without the banks, consumers would be unable to save and borrow. Businesses would not have access to the patient finance that they need if they are to grow and to create high-quality, well-paid jobs.

Too often in recent years, many banks have fallen short of the very high standards that we expect of them; that is a view shared across the House. In many instances, they have not acted with trust and they have not acted fairly. At times, they have acted recklessly and unethically. Instead of helping their customers, they have exploited them.

Banks and their employees operate in a high-skilled environment, dealing with sophisticated financial instruments that are often beyond the ken of the average consumer and small business owner. Rather than using that knowledge to guide and advise consumers, they have, in some instances, abused that knowledge to exploit them. In investment, consumer and business banking, banks have betrayed the trust of customers and undermined the integrity of the industry. In doing so, they have totted up some truly colossal sums in fines.

Indeed, 2014 was a record year for fines in the City of London, culminating in the £1.1 billion fine levied by the Financial Conduct Authority on five banks, including HSBC and the Royal Bank of Scotland, for their part in the forex fixing scandal. In recent times, four UK banks—Barclays, HSBC, RBS and Lloyds—have also paid £1.5 billion in compensation for mis-selling interest rate hedging products. Other recent scandals include LIBOR fixing and the mis-selling of payment protection insurance.

[Mark Garnier (Wyre Forest) (Con)]

I am grateful to the hon. Lady for giving way; she is making an intelligent speech. With regard to the recent fines, is it not fair to say that in the vast majority of cases the actions that led to those fines were perpetrated under the old regulator, the Financial Services Authority, and that the bringing to justice, meaning the fining, has been done under the new regulatory regime? Does that not reinforce how bad the old system was and how good the new one is?

[Cathy Jamieson]

I thank the hon. Gentleman for what I think was a bit of a compliment about me making an intelligent speech. Of course, he then proceeded to make a party political point by trying to shift the emphasis back on to what happened before, and I understand why he would seek to do so. It is important to acknowledge that there have been changes, but there is no evidence yet to suggest that all the behaviours that led to wrong decisions being taken have changed, so we still need to keep an eye on that.

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[Cathy Jamieson]

My hon. Friend makes a useful point. I am confident that he has read the paper we published on that, which highlights the need to ensure that finance gets to small and medium-sized enterprises, in particular, and the important role that a proper British investment bank can play.

Earlier this month we saw a new and startling example of impropriety, with the allegations that HSBC’s Swiss subsidiary actively advised customers on how to avoid, and indeed evade, tax. I want to emphasis again that all those activities are symptoms of a wider culture that has seeped from investment to retail banking. That culture has been characterised by short-termism and the pursuit of profit at the expense of all else—in many cases, at the expense of the banks’ own customers and the wider economy. That culture led to banks exploiting their consumers and ripping off the taxpayer.

That culture has also caused banks to lose sight of what should be their core function. The role of our high street banks is, or should be, twofold: they must serve the needs of consumers, providing basic borrowing and saving facilities and loans for mortgages to buy homes; and they must provide finance to businesses, as my hon. Friend the Member for Denton and Reddish (Andrew Gwynne) suggested, enabling them to start up, grow and create well-paid and secure jobs. However, lending to business has fallen by over £55 billion since 2010, despite an array of Government schemes, such as Project Merlin and the funding for lending scheme, all of which have to varying degrees failed to deliver. Despite that, however, and despite all the scandals, the banks have continued to pay lavish bonuses to a small cohort of senior employees.

[Mark Garnier]

The hon. Lady is being very generous in giving way. She says that business lending is not quite what it was in the old days, but is it not fair to say that business lending in the old days was incredibly irrational and irresponsible, and that that led to the financial crisis that brought the banks down? We want the banks to lend, but we do not want them to lend irresponsibly and create another crisis.

[Cathy Jamieson]

I do not think that anyone is suggesting that we want irresponsible lending. We want those businesses that are valuable, sustainable and want to grow—I am sure that the hon. Gentleman has heard from them in his constituency, as I have in mine—to be able to access finance. That is the important point.

[Cathy Jamieson]

I was planning to say something about the cap later, but my hon. Friend has made her point with words that I would have difficulty bettering.

Let me return to banks paying lavish bonuses. The public are understandably still questioning why, with wage stagnation and the cost of living crisis that they are all facing, senior bankers have continued to reward themselves in that way. Let us look at the figures. Last year, bonuses at Barclays were up 10% to £2.4 billion and those at Lloyds were up 8% to £395 million. The Royal Bank of Scotland, 79% of which is owned by the taxpayer, announced a bonus pool of £577 million. Some may say that that is all well and good, because it is just senior bankers enjoying the hard-earned fruits of their labour, but that is more difficult to justify in the light of recent scandals and given that two of the UK’s four largest banks—Barclays and RBS—have experienced drastic falls in profits. Earlier this week, with impeccable timing, of course, HSBC announced its bonus pool for the year, awarding its chief executive, Stuart Gulliver, £7.6 million—I repeat, £7.6 million—and paying 330 of its top employees in excess of €1 million, despite the revelations of recent weeks and a 17% fall in profits.

It would be remiss of me not to refer to the role that the Government have played in all this. As well as the failure of their schemes to galvanise lending, they have failed—this point was made my hon. Friend the Member for Denton and Reddish—to implement all the reforms recommended by the Independent Commission on Banking and the Parliamentary Commission on Banking Standards. They ignored Labour’s pleas for action to regulate benchmarks when the LIBOR scandal first came to light, and they have actively aided and abetted bankers’ efforts to safeguard their bonuses. As my hon. Friend the Member for Clwyd South (Susan Elan Jones) pointed out, the Chancellor launched an ill-fated and misguided legal challenge to the EU bonus cap, which limits bonuses to 100% of fixed pay or 200% with shareholder approval, which still seems fairly generous.

[Mark Garnier]

What troubles me about a lot of what the hon. Lady is saying is that she is confusing how much bankers have been paid with how one goes about paying them. While many of us would agree that having pay packages of millions of pounds is an issue in itself, it is not to do with bonuses. She will probably propose in due course that bonuses should be clawed back over a period of 10 years, which I recommended as a member of the Parliamentary Commission on Banking Standards, so I agree with her entirely about that. However, capping bonuses reduces the amount of money that can be clawed back. In fact, if one pays a banker £1, 90p should be paid as a bonus, because then there will be more to claw back and therefore more sway over that banker to encourage them to behave better.

[Cathy Jamieson]

I thank the hon. Gentleman for that intervention. I know that he made those points during the work that he did. I am glad to hear that he agrees with us on some of this, and I will deal with a number of his points later.

We still have to look at the actions of this Government in taking on the legal challenge to the EU bonus cap, however. I am sure that the hon. Gentleman does not suggest for a moment that that was a sensible thing to do. I do not think that the public saw it in that way—

[Mark Garnier]

rose—

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[Cathy Jamieson]

I am not going to give way because I am making important and serious points about the future of our young people. I have been very generous in giving way and I want to finish this point. Our bank bonus tax not only will offer a lifeline for thousands of young people, helping them to earn, learn, and get a foot on the career ladder, but will help the economy and mean that the banks give something back to society.

In addition to that and our wider programme of reform, we will extend the deferral and clawback period for bonuses, ensuring that rewards are paid out proportionately and can be recouped when evidence of reckless or inappropriate behaviour is revealed further down the line. As I said, the financial crisis and recent scandals have shown that risky decisions can take up to a decade to have an impact. The next Labour Government will therefore ensure that if bankers have been shown to have acted inappropriately or made reckless decisions, banks will be able to claw back any bonuses awarded. We will act on the recommendations of the Parliamentary Commission on Banking Standards by extending the period for the clawback of bank bonuses that have already been paid to at least 10 years. We will also extend deferral periods for senior managers to at least 10 years, which will help to deter the rash and short-sighted behaviour that we have seen in the past, and to encourage banks and their employers to have a view of the long term.

[Mark Garnier]

rose—

[Cathy Jamieson]

I will give way to the hon. Gentleman once more, given his role on the Parliamentary Commission.

[Mark Garnier]

I am extremely grateful to the hon. Lady; she really is being incredibly generous. Capping bonuses and targeting the bonus with a tax in itself will inevitably drive banks’ behaviour towards the perverse outcomes that none of us in the Chamber wants. If we tax bonuses, the banks will change them into something else. They cannot wriggle out of a balance sheet tax, which this Government have imposed, but they will be able to wriggle out of a bonus tax, and we cannot avoid that.

[Cathy Jamieson]

I believe that the hon. Gentleman is trying to be helpful by making points that I know have been made before, but I refer him to the previous occasion on which a bankers bonus tax was implemented, when a number of anti-avoidance measures were put in place to deal with such a problem. We do not want any unintended consequences.

I am trying to signal our intent. When we are in government, we intend to make the tax work to change the culture and practice in banking, as well as to ensure that we help our young people. I am sure that any folks listening to my speech who are thinking about devising ways of not paying up or not making a fair contribution will hear the intent in what I am saying and therefore not pursue such a course.

I remind hon. Members who have not already read our “Plan for Banking Reform”, which was published last week, that it sets out a series of wide-ranging reforms to the banking sector. It builds on much of the work done by the commissions and is informed by speaking to people in the industry. It focuses on the four key areas of stability, competition, access to finance, and culture and pay. The one-off tax on bankers bonuses is just one part of the reform process, but it is an important part.

Last week, I hosted a jobs fair in my constituency, as have many hon. Members on both sides of the House. I saw at first hand how much the young unemployed people who came along want to work and to contribute to society. I met people who have been out of work over a fairly lengthy period and are desperate for the opportunity to get back into employment and to contribute to society. They want decent jobs with decent pay; they do not want the instability of being on zero-hours contracts or of working for umbrella companies that are more interested in avoiding paying their taxes than in paying their way in society. We need to ensure that such young people and the long-term unemployed—not just in my constituency, but right across the UK—get the help that they need. These young people need to make the first step on to the careers ladder, and the long-term unemployed need help to get back into real jobs. It is absolutely vital that such support is given to not only our young people, but the long-term unemployed, who are almost at risk of being frozen out of the jobs market.

As I said, Labour’s programme of banking reform is driven by economic imperatives. The motion sets out that banks should make a social contribution as well as an economic one, and that the bonuses they pay should be a reward for exceptional performance, not a compensation for failure. I believe that those are vital steps along the road to restoring fairness, stability and trust to the sector so that banks serve the needs of the wider economy. I hope that the Government see fit on this occasion to support our motion.

Financial Services (Banking Reform) Bill

Debate between Mark Garnier and Cathy Jamieson

Wednesday 11th December 2013 Commons Chamber

[Mark Garnier]

Is the shadow Minister aware that the banks have already initiated the creation of a professional banking standards body?

[Cathy Jamieson]

I thank the hon. Gentleman for that comment. I know that he has done considerable work in his role on the commission, but it is important that these issues be put on the record. It would have been useful to consider them in Committee, and I mention them now to show that significant pressure has been applied to move things forward and bring about change. The Government appeared to resist that and some of the commission’s recommendations until, of course, their recent change of heart following their defeat in the other place on the amendment for the licensing regime. At that point, they felt they had to bring forward their own plans.

The Opposition might have expected the Government to be reasonably gracious and accept the decision of the other place, but today they have tabled an amendment to disagree with and remove Lords amendment 41 from the Bill. To be fair, what they have tabled, under pressure to replace that amendment, is better than nothing, but it does not go anywhere near as far as the amendment they wish to strike out. The main difference essentially concerns the code of conduct. Lords amendment 41 states specifically that the

“licensing regime must…apply to all approved persons exercising controlled functions, regardless of financial sector;…specify minimum thresholds of competence including integrity, professional qualifications, continuous professional development and adherence to a recognised code of conduct and revised Banking Standards Rules”.

That is important, given that the Government’s position does not call specifically for a code of conduct. In some ways, their regime legislates for the commission’s recommendations, but by failing specifically to legislate for an open and transparent code of conduct, they risk failing to address some of the ethical issues surrounding so-called casino banking. Their more permissive amendment does not focus specifically on a code of conduct.

Several other hon. Members wish to speak, so I shall conclude with some brief comments about remuneration. As hon. Members might be aware, the Opposition have given considerable thought to the regulation of bankers’ remuneration, and there remain certain issues that the Government must consider before the general public can have confidence in the industry. The public find it difficult to understand, and have concerns about, the culture of high risk, high reward that was evident in the previous system and which contributed to the crisis.

Financial Services (Banking Reform) Bill

Debate between Mark Garnier and Cathy Jamieson

Monday 8th July 2013 Commons Chamber

[Cathy Jamieson]

I might have been tempted to support new clause 2 had the hon. Gentleman decided to put it to the vote, and I look forward with interest to hearing what the Minister has to say. I understand the issues relating to length of time and the dangers of a catch-all provision but, in the aftermath of the banking crisis, the legal and regulatory structures, and the further changes that the Government promise to introduce, we need to ensure that the banking culture really changes. New clause 5 attempts to ensure that banks think for themselves about how to ensure that their performance is sustainable. Now that the Government have moved to an acceptance of the broad principle, the devil will be in the detail of what they do next. Perhaps the Minister will have more to say on that.

[Mark Garnier]

The shadow Minister raises the 10-year deferral of bonuses recommended by the Parliamentary Commission on Banking Standards. We made that recommendation so that we could at least see the business of a bank through a business cycle, as it can take 10 years to expose irregularities. One problem occurs that when people in receipt of such bonuses—there are already some deferred bonuses, in particular in UBS—want to move to another institution, they are bought out of their held-back bonus. Does the hon. Lady have any proposals to deal with that?

[Cathy Jamieson]

The hon. Gentleman makes an extremely good point. It is perhaps worth remembering that not only did the Parliamentary Commission on Banking Standards make that recommendation, but Andy Haldane supported it when he came before the Treasury Committee. I am sure that the Minister will have something to say on that when he sets out his next set of actions.

New clause 7 relates to protection for whistleblowers. It is important to ensure that workers are protected if they make a disclosure in the “reasonable belief” that misconduct has occurred, is occurring or could occur. The new clause would amend the Employment Rights Act 1996 and impose a duty on managers to inform the bank chairman—or chairwoman, if that is the case—of any report of wrongdoing that qualifies as a “protected disclosure”. This is an updated version of a clause tabled in Committee, and reflects the final report of the parliamentary commission, which in paragraph 788 states:

“A non-executive board member—preferably the Chairman—should be given specific responsibility under the Senior Persons Regime for the effective operation of the firm’s whistleblowing regime. That Board member must be satisfied that there are robust and effective whistleblowing procedures in place and that complaints are dealt with and escalated appropriately. It should be his or her personal responsibility to see that they are.”

In new clause 7 we are attempting to trigger a cultural change in the financial services sector. There is no doubt that a bank employee would wrestle with their conscience before deciding to break ranks. If an honest trader suspects wrongdoing and is considering informing the authorities, there must be protections to mitigate his or her fear of losing their job.

The LIBOR scandal illustrates the importance of making it easier to report wrongdoing. At that time there was a quite a lot of speculation in the press and elsewhere about the accuracy of LIBOR, yet nobody came forward with the evidence. New clause 7 seeks to bolster the maintenance of law and order—I think everyone would generally agree with that—and would make it easier for the regulators and the banks’ compliance teams to do their jobs.

I looked closely at the Government’s response to the commission today, which says:

“The Government recognises the important role that whistleblowing can play in exposing wrongdoing”.

It continues:

“BIS is publishing a ‘call for evidence’ to establish a strong evidence base to help Government better understand the operation of the whistleblowing framework in today’s employment environment”.

It seems that the Government are now linking whistleblowing in the financial services sector with the wider review. We need to be careful about how a code of conduct, support for regulators and the role of regulators—including their interaction with employment tribunals, which is how the report couches this issue in context—are dealt with. Will the Minister say in his response when he anticipates the review being completed and what legislative vehicle would be proposed to implement any recommendations? It was not immediately apparent to me on reading the report that that had been established or thought through. Does he agree that any delay in dealing with the issue would risk putting that change out of sync with some of the other important changes that will be made to banking and the banking culture?

Finance (No. 4) Bill

Debate between Mark Garnier and Cathy Jamieson

Thursday 19th April 2012 Commons Chamber

[Cathy Jamieson]

My hon. Friend makes a significant point and that is part of the fairness test, which I do not think has been met. The Centre for Social Justice has been very critical of this aspect of the Government’s plans, which it argues could

“threaten a new wave of family instability and breakdown…which flies in the face of their commitment to ‘shared parenting’.”

[Mark Garnier]

I am not entirely unsympathetic to a great many of the hon. Lady’s points, but what she is describing has a great deal to do with the complexity of the tax system as a whole. That tax system doubled in complexity under her Government.

[Cathy Jamieson]

With respect to the hon. Gentleman—he said he had some sympathy with my points, so I do not want to be entirely negative in response—we will not solve the complexities of the taxation system by adding even more complexities that are unfair to families and will affect children negatively.

Let me put one final issue on the record. People who are not in work and who receive child benefit for a child under 12 receive national insurance credits to enable them to build up entitlement to state pensions. The Government’s original announcement led to concerns about the impact on future pension entitlements of women, in particular, if families stopped claiming child benefit. The Government said from the outset that no one would miss out on national insurance credits as a result of the child benefit changes, but it is unclear how they proposed to ensure that. Under the latest proposals, people who are entitled to child benefit and families affected by this charge may elect not to receive it, but a claim for child benefit will still need to be made in order to receive national insurance credits. Information published by HMRC confirms that.

I am extremely conscious of the time so I will not say anything more, other than that I think that everybody should listen carefully to the debate and to the points that have been made. When Members consider how to vote, they should consider both the principles involved of support for families with children as well as the layers of complexity and confusion there will be if the proposal goes through.