Bankers’ Bonuses and the Banking Industry

Priti Patel Excerpts

Wednesday 25th February 2015 Commons Chamber

[The Exchequer Secretary to the Treasury (Priti Patel)]

I thank all Members who have contributed to this debate, which has been quite wide-ranging; it even became a debate on the north-east region at one point. I commend my hon. Friends the Members for Hexham (Guy Opperman), for Redcar (Ian Swales), for Dover (Charlie Elphicke) and for Warrington South (David Mowat) for their speeches. I particularly commend my hon. Friend the Member for Hexham, who made a very thoughtful and considered speech about the changes made by the Government through the banking reforms. He also highlighted the role of challenger banks and his own commitment to that through his work locally. He is clearly a champion not just for his constituency and region but for challenger banks, and that is to be commended.

I think it is fair to say that we all agree that the banking scandals that have emerged in the past years have been disgraceful, and we have shown that consensus during this debate. They have, without a doubt, shaken public trust in a proud British banking history, and revealed pockets of rottenness at the heart of the banking system. The country is understandably angry about the reports of practices, behaviour and conduct that have become legendary in the banking scandals of recent years.

[Mr Graham Stuart]

Will my hon. Friend give way?

[Priti Patel]

I will not because of the time, if my hon. Friend will accept that.

We can never go back to the bad old contaminated days when the culture in the banking sector was so wrong. That is why the actions taken by this Government, which were long overdue, and neglected by the previous Government, will ensure that the system and the sector never go back to those bad old days. The core action that has been undertaken to tackle misconduct has been pure reform on misconduct and clearing up remuneration. The reforms have ensured that we have the toughest remuneration regime of any major financial sector. Through the Government’s reforms, we have ensured that rotten behaviour in the sector will be punished. We have heard about criminal sanctions today.

The overall contribution of the sector is hugely important to the country’s economy, but we must ensure that we reform its reputation and conduct, and change the culture to bring probity and integrity back into a system that was challenged and flawed. Back in 2010, we had a banking system that had no connection between performance and remuneration, and that rewarded, and was dominated by, excessive risk taking. There was no accountability for losses. It was a sector where wrong practices and the wrong culture had become institutionalised, and, more disgracefully, where people who should have known better turned a blind eye and looked the other way.

Like any responsible Government, our job is to bring back measures and laws, and a regulatory framework, that were sorely lacking in the past to ensure that the financial sector regains its reputation, while stamping down on the reprehensible behaviours of the culture that the country witnessed in the past. This Government have brought in reforms, transparency, a regulatory framework, and the ability to make sure that those who did wrong would not go unpunished. We have made reckless misconduct leading to bank failure a criminal offence. We have strengthened the accountability of senior management and the powers of the regulators. We have increased choice and competition in the retail banking sector to help create a sector that genuinely puts consumers first and brings through the regulatory changes that are required.

That also means clamping down on unacceptable pay practices. We have heard plenty of references to that throughout the debate. Hon. Members spoke about remuneration in two banks in particular: RBS and Lloyds. The hon. Member for Bishop Auckland (Helen Goodman) asked for clarity on Lloyds. This week, we announced that we are getting another £500 million back for the taxpayer, which is money that we have put in and are now taking out. We can do that because, since the crisis, Lloyds has gone from failure to being a strong and profitable bank that is helping to drive the recovery. The bank contributes £238 million per year through the bank levy. It will have its bonus pool reduced this year, and we are continuing to restrict its cash bonuses to £2,000. It is absolutely right to ensure that the culture is completely reformed.

Both the hon. Lady and my hon. Friend the Member for Hexham mentioned not only challenger banks, but the issue of financial exclusion. I want to pay tribute to organisations such as challenger banks and credit unions. I spend a lot of time in my constituency of Witham at the Holdfast credit union, which does so much for those who are excluded.

Through our reforms, we are ensuring that banks that need to be punished are punished. The reforms have led to greater disclosure and transparency, and we have also reformed bonuses. We are consulting on the recommendations of the Parliamentary Commission on Banking Standards to strengthen the rules further. There is no doubt that actions speak louder than words, and we have taken action.

The EU bonus cap, which has been mentioned, would not control bankers’ pay. It would push up fixed pay, and make it difficult to claw back bankers’ earnings when things go wrong. It would weaken financial stability and ultimately make it more likely that the taxpayer, rather than the banker, paid the cost of any mistakes. Unfortunately, that has already started to happen and the cap remains fundamentally flawed, but we are willing to draw a line under the issue, and the legal challenge has been withdrawn. Instead, we are looking at other ways of building a system of pay in global banking that encourages rather than undermines responsibility.

It is fair to say that bankers got it very wrong over a number of years. Regrettably, they are still getting it wrong, and several Members mentioned HSBC. Its chief executive, who is in front of the Treasury Committee this afternoon, has apologised for the failures and errors, which have been pushed out into the public domain. However, the reality is that the Government have taken action to sort out the mess.

The job is not over. We must continue to be firm in working with the regulators to stamp out malpractice. We should continue down the path we have set: linking pay and performance; making sure that failure is not rewarded; and ensuring accountability by our most senior managers. We should be proud of being the toughest major financial centre in the world on remuneration, but we should also be careful not to get carried away with the rhetoric and damage the competitiveness of one of this country’s most prized economic assets.

This Government have set the sector back on the right path, so I urge hon. Members to reject the Labour party’s motion. As Opposition Members have pointed out, the motion refers to job guarantees, but the best guarantee for jobs is to stick to the Government’s long- term economic plan, under which youth unemployment and unemployment have declined.

Question put.