DAVID Cameron has been accused by Labour of employing “smoke and mirrors” tactics in a row over possible sky-high bonuses at state-owned bank RBS.
The Prime Minister yesterday said that cash bonuses at the bank would be restricted to £2,000 next year and promised to veto proposals to increase its overall wage bill.
Mr Cameron did not, however, make any pledge to limit payouts in the form of shares for RBS staff.
Labour claims his stance is an attempt to sidestep the issue of how the Government will deal with the impact of European Union rules capping bonuses.
Under the regulations, bonuses worth more than 100 per cent of basic salary must be approved by shareholders – who are, in RBS’s case, British taxpayers, represented by Chancellor George Osborne.
The EU cap is being challenged by the Government in the courts, with Mr Osborne having warned that it will simply lead to financial institutions paying higher salaries which would be harder to claw back if problems arise.
Shadow Chief Secretary to the Treasury Chris Leslie yesterday told the Commons: “For all the sophistry and the smoke and mirrors attempts by Ministers and indeed the Prime Minister earlier on to try and give the impression that they were taking action on bonuses we know that they confront a key decision because of this new Europe-wide rule to limit bonuses.
“However they try and spin their way out of it they are going to have to confront that particular decision.
“The Prime Minister gave the impression at Prime Minister’s question time that he was going to veto higher pay and bonuses. That was the clear impression he was trying to give.
“Maybe the Prime Minister was unintentionally misleading in the way that he was making that particular point and he might want to come back to correct the record.
“But some of us may well think that he was conveniently looking at this question of total banker pay at RBS, total remuneration, as a sort of device to slip out of this question about how he’s going to exercise that shareholder vote.
“The House needs to know that RBS has been reducing the number of bankers on their roll by about 2,000 bankers less in the last year. You’d expect their total pay bill to actually start to fall, so it should.
“But it still doesn’t get out of the question about those individual senior bankers, those earning £400,000 or more, whether the shareholder, in this case the Chancellor, is going to give them permission not just to have bonuses of 100 per cent of their salary but to bust through that and go to 200 per cent of their salary.”
Treasury Minister Sajid Javid said that, while the Government appreciated the public’s concerns over bankers’ bonuses, it would take no lessons on the subject from Labour.
He said: “While bonuses increased year after year on their watch ... they are down 85 per cent from their peak in 2008. Since 2010 we have been leading the way on tackling unacceptable pay practices.”
Mr Javid went on: “The truth is that while Labour talks about clamping down on bonuses, this Government gets on with the job.”
He added: “The Government does not support the EU cap on bonuses, the Government has fought against this cap and we are currently challenging it in court. The bonus cap creates perverse incentives by removing the link to performance.”
Mr Javid also made the point that the Government had yet to receive RBS’s bonus proposals, adding that “once we do we will be in a position to judge whether these proposals represent value for taxpayers”.
Meanwhile, Bank of England governor Mark Carney has said he does not back a “crude bonus cap” on pay in banks or proposals to restrict their size.
His remarks to MPs on the Treasury Select Committee are likely to be seen as a rejection of Labour arguments on the financial sector.
Mr Carney said he “absolutely” agreed with the parliamentary commission on banking standards when it said it was not convinced a bonus cap was the right way to control pay.
The governor also backed a separate commission’s findings that a cap on banks’ market share would “not result in substantial improvement to competition”.
Mr Carney said: “Just breaking up an institution doesn’t necessarily create or enable a more intensive competitive structure.”
Labour has accompanied its call for the Government to block large bonuses at RBS by announcing market share-capping proposals that would force major high street banks to sell branches to smaller rivals in a bid to improve competition.
Blackfriar: Business Thursday, Page 3.