Youth Unemployment and Bank Bonuses

Mark Tami Excerpts

Monday 23rd January 2012 Commons Chamber

[Mr Michael Meacher (Oldham West and Royton) (Lab)]

If I said that the Chief Secretary’s defence of the Government’s position was unconvincing, that would be generous.

I want to focus on bank bonuses and the impact that they have on the economy, particularly on youth unemployment. It is striking that this year the pig-fattening season in the City—otherwise known as bonus time—happens to coincide not only with unemployment among young people exceeding 1 million but with the rest of the population being informed, through research undertaken by Resolution Foundation, that the pay freeze is now expected to last until 2020. Last year the squeezed middle, which represents about a third of the population, suffered a big 4.2% real-terms fall in their incomes; now they are being told that by 2020 they will have £1,700 a year, or about £33 a week, less than they had in 2007—an 8% drop even before inflation kicks in. On the other hand, the City’s 1,200 code staff—the people who take and manage risk—will this year take home, on average, about £1.8 million. That is £34,500 a week or, to put it another way, 78 times the average wage.

Of course, those people are the elite—the risk takers. It is not a bad reward for those who took and managed risk so skilfully until 2008 that as a result, a gargantuan bail-out was required that has cost this country and the Government £70 billion, and torn a hole in the Government budget amounting to 8.5% of GDP, £120 billion. That is the difference between the deficit before the crash and 11.6%, which was the figure afterwards, and it is still projected to lead in 2013-14 to a national debt of about £1.4 trillion—slightly more than the nation’s entire income. That is not a bad achievement for just over 1,000 people. It is a pretty good thing that there were not a million of them, as that would have bankrupted the economy totally.

What makes this greed—and that it is what it is—so unconscionable is that it is so unrepentant. There has not been a shred of remorse or apology for what has been done to the country; indeed, it has been quite the opposite, with an arrogant decision that we should return to business as usual as though nothing has happened. As my right hon. Friend the Member for Wolverhampton South East (Mr McFadden) rightly said, the banks have not even fulfilled the very modest requirements of them under Merlin to increase lending to businesses and home owners and contribute to the creation of jobs, especially for young people. Indeed, the opposite has happened. Lending to business has actually declined because of the degree of deleveraging, and the number of jobs going to young people has also declined, leading, of course, to a disastrous increase in unemployment.

The truth is that the bankers do not seem to get it. There is public outrage that a banking system that owes its continued existence to massive Government intervention can still pay itself mega increases in salary and bonuses, and that in an age of austerity 90% of investment bank profits are directed not at strengthening balance sheets, at shareholders’ dividends, at lowering costs to customers or at creating jobs for young people, but at a gigantic personal pay-off.

I simply ask this: what is the justification for bankers’ bonuses? Bonuses were what caused the reckless stampede into derivatives, securitisation and other new-fangled financial instruments that it turned out all those clever chaps in the City did not even understand. Even now, they still do not want to put their money into what the nation really needs, which is jobs for young people—that is what the debate is all about—and a massive revival of manufacturing industry. In 2010 the UK deficit on traded goods was a staggering £100 billion, which is the worst by far that this country has ever suffered, and 2011 is likely to be much the same, or possibly worse. That is unsustainable, and dealing with it should be our No. 1 priority.

[Mark Tami (Alyn and Deeside) (Lab)]

My right hon. Friend is making a powerful case. Does he agree that the other problem is that bankers are still obsessed with the short term? That is why they are not investing in such things as manufacturing. They are still obsessed with the short-term measures that deliver them large-scale bonuses.

[Mr Meacher]

My hon. Friend makes a very important point. As I am sure everyone in the House realises, there is far too much short-term instinct, particularly in the City. What we need, and have not had, is the relational banking that exists in the mittelstand in Germany. Banks there spend a lot of time, effort and money producing a long-term relationship with manufacturing units that they can support. That is the type of model that we need in this country, but it is not what we have got.

The banks continue to put their money overwhelmingly into property, mortgages, offshore speculation and tax havens, all for their own enrichment, and stuff the rest of the economy and jobs for young people. I am putting it strongly, but there is huge bitterness outside, as one can see from the August riots, from the Occupy movement and from many other instances of anger beginning to bubble up.