Liam Byrne clashes with George Osborne over bank bonuses

Oct 27 2009 by Jonathan Walker, Birmingham Post

Birmingham MP Liam Byrne (Lab Hodge Hill) has clashed with Shadow Chancellor George Osborne after the Tories announced plans to ban banks from paying big cash bonuses to staff.

Mr Osborne said banks which had been bailed out with taxpayers’ cash should be told to use the money to ease the credit crunch by making loans available, following the example set by United States President Barack Obama, who has announced similar policies.

But Mr Byrne, the Chief Secretary to the Treasury, claimed the Government had already introduced rules to limit bonuses which were tougher than anything proposed by the Conservatives.

Controversy over city bonuses intensified after a report by the Centre for Economics and Business Research predicted that bankers’ rewards could increase by 50 per cent this year.

Bankers will receive an estimated £6 billion in bonuses for 2009, compared with £4 billion for 2008, the study said.

Mr Osborne told an audience in the City: “It is time for the Government to act – and act decisively. We cannot wait for the Prime Minister’s promised land of a new responsible bonus culture which looks more remote than ever.

“We need to take emergency steps to support bank lending and move the economy forward this winter. The banks have to understand that we are all in this together.

“I am today calling on the Treasury and the Financial Services Authority to combine forces and stop retail banks – in other words the banks that lend directly to businesses and families – paying out profits in significant cash bonuses. Full stop. That includes their investment banking arms. Then the cash that would have been paid out should be put on to banks’ balance sheets explicitly to support new lending.”

Mr Osborne stressed he was not trying to block cash bonuses for low-paid counter staff or call centre workers. Where firms needed to award bonuses to high-flyers to remain competitive they should be paid in new shares in the companies, he said.

The shadow chancellor said Britain would then be in step with President Obama’s administration: “The Obama administration’s new policy will see the cash remuneration of the top bankers cut by 90 per cent, and banks have been told to pay out in shares instead.

“America is acting. Britain at the moment is not. We are a party that believes in enterprise and a competitive economy.”

Mr Byrne said: “George Osborne made the wrong call on saving the bank system – and now he’s trying to play catch-up. The problem is he’s playing it badly.

“The bonus plans he’s floating are weaker, not stronger, than the change we’ve already put in place.

“The bottom line is that we have gone further than any other country in the world in rules on bankers’ pay.

“First, banks that got taxpayers’ help paid a zero discretionary bonus this year; at the end of last year, we banned cash bonuses in RBS and Lloyds.

“Second, the UK rules are much more comprehensive than those in the US. We have applied a tough standard to 100 per cent of well-paid staff working in state-supported banks, not just the top management.

“Third, all retail and investment banks have had to sign up to the G20 agreement on pay which ensures bonuses are paid over a number of years with the majority of any bonus paid not in cash but in shares.”