Massive bonuses for bankers are back. So be it – Britain needs their taxes
Bankers' bonuses are back – and they're booming. The City 's financial giants have been handing out more free shares than most stockbrokers could handle (and bucketloads of cash, to boot).
Welcome to the banking casino 2.0, where the roulette wheel always lands on black and the slot machines are looser than America's gun laws.
Brexit got rid of the requirement to impose the EU's bonus cap, which limited payouts to no more than a banker's basic salary or twice that if shareholders approved as they mostly did.
Kwasi Kwarteng tore up the old rules – you may also remember that he was chancellor at the time of the disastrous Truss mini-Budget, which pushed mortgage rates and bond yields (interest rates) into the stratosphere – and bonuses duly soared. HSBC moved from two times to ten times a basic salary for its bonuses, and HSBC is a relative skinflint as far as these things go. Top American banks operating in London moved to 20 or even 25.
HSBC's overall bonus pool last year amounted to $3.8bn (£3bn), a smidgeon ahead of the previous year. At Barclays, which also has a big investment bank, it jumped by 10 per cent to £2bn. All that lucre will buy a lot of flash cars, fine wine, racehorses, or whatever high-end toys take the fancy of those receiving the really big paydays. The Guardian reported that the top-paid employee at HSBC made between €19m and €20m (up to £16.6m) while the Barclays equivalent won a payday to the tune of between €17m and €18m (£14.8m).
While these institutions' CEO pay packages are reported down to the last penny, financial institutions don't have to give the same details about their top-paid employees, who are often not board members. For the record, Barclays CEO CS Venkatkrishnan made £10.5m so he's not exactly going hungry.
HSBC said that its decision to rejoin the bonus party was to afford it the 'flexibility to reward extraordinary individual performance delivered by a small number of employees'. Stop me if you've heard that before. But you know what? So be it.
This may cause a few eyes to blink, given the criticisms I've thrown at these sorts of awards in the past. Don't get me wrong, they remain highly questionable and I wonder whether the shareholders who pony up the funds for the bankers to bet with see any benefit.
People understandably get cross when nurses and teachers struggle to meet their mortgage payments while City fatcats are showering in champagne. Many question the morality of a society that rewards those who play dice on the financial markets many times more than those who save or enrich the lives of its children. But here's the thing: These banks and their well-paid employees pay an awful lot of tax and, right now, that money is badly needed.
According to the City of London Corporation – which is the local authority for the Square Mile – and lobby group TheCityUK, the financial and professional services sectors pumped a combined £110.2bn into the exchequer in 2023. That amounts to 12.3 per cent of total receipts: more than the annual education budget and over half the health budget.
Right now, the coffers are bare. The Treasury's cashbox is all but empty and the chancellor's headroom, if she is to stay within the framework of her financial rules, has all but evaporated.
Without the contributions of its banks and bankers, the UK would be flat broke. It would be in the international equivalent of debtors' prison, with government bonds rated as 'junk' and the nation facing up to the prospect of going cap in hand to the IMF, something which last happened in the 1970s. Needless to say, loans from that august institution tend to come with very unpleasant T&Cs.
Brexit put those revenues at risk by delivering a severe blow to the City that tarnished the financial centre's erstwhile shine. Companies don't want to list here. European financial centres have been snapping at London's heels and stealing its business. But the end of the bonus cap meant the City could at least offer something that the likes of Frankfurt, Dublin, Paris or Amsterdam cannot.
The consultations taking place on further easing banking regulations make me feel queasy. Since the financial crisis, we've had a global pandemic followed by an energy price shock not to mention all those wars. But we should not allow those events to overshadow all those stories about hedge fund managers looking into buying sheep in anticipation of a global economic collapse and an economy based on barter emerging from the wreckage. Britain also spent billions bailing out banks that were too big to fail: banks which were scandalously allowed to socialise their losses.
The truth, however, is that we live in the here and now. The world has turned and Britain finds itself in dire need of cash to fund its creaking public services and to improve its crumbling infrastructure. So suck it up, buttercup, because all those new doctors we need to fix the NHS? The nurses too. And the teachers while we're at it. They're going to need paying.
The bonus boys and girls, and the City, can help with that so long as they pay what they owe. Making sure that they do so would be just the thing to focus on.
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