Nick Hayns: Osborne was right; it’s time we moved on and stopped bashing the bankers

After all, we need only look back to December 2011 when David Cameron was outnumbered by the same margin on proposed plans for an EU-wide fiscal union.

However, what differed was the reaction. David Cameron returned a hero – sticking up for Britain’s interests, waving his historic veto, giving the metaphorical “up yours” to those meddling Europeans and their dastardly machinations. George Osborne by contrast – and if the media is to be believed – returned humiliated.

Of course, unlike David Cameron with his veto, Osborne was totally powerless to stop the wheels of change turning. But his main error was to stick up for bankers.

In doing so, he aligned himself with possibly the most loathed segment of society – politicians, perhaps, excluded. No wonder the media – and indeed a Labour Opposition – gave him both barrels.

The problem with the narrative though is that he was entirely right. Just as David Cameron was said to have stuck up for Britain’s interests, so had Osborne. For the proposed bonus cap is entirely illogical, will serve to worsen the problems it professes to solve and will damage our banking sector for no purpose at all. And – whisper it – banking is something we’re quite good at in this country.

Starting at the beginning, the bonus cap is being sold as something that will make another financial crash less likely. No more will those risk-taking loons in the City be incentivised to gamble away our money on their crazy get-rich-quick schemes. Less risk, less trouble – that’s the theory.

What is missed from the debate, however, is that banks would most likely have to raise base salaries in order to cover the shortfall – both to retain the talent they have, and to compete for talent against other global financial centres (New York, for instance) which would be unburdened by such red tape.

Such a move would have two effects. Firstly, by having a higher base salary and less scope for discretionary reward, the link between performance and remuneration would be severely weakened – thus making risk-taking, perversely, less risky for the individual.

Secondly, with higher fixed wage bills, it would make banks less able to respond quickly to fallow periods by cutting costs – thus making them more likely to run into financial difficulty.

For the record, I am no staunch defender, or indeed receiver, of gargantuan bonuses – believe me, if I ever received a million pound bonus, my next missive would be carved into the side of a coconut, as I whiled away the rest of my days on a beach in the Caribbean.

But to introduce a cap which directly made worse the very problems it was supposed to solve? Madness.

However it is not just the direct effects of this legislation that should see it being fought against. As outgoing Bank of England Governor Sir Mervyn King said only the other day, it is a “distraction”.

If we’re going to avoid a 
similar crash happening again – and a subsequent bail-out bill 
to make the eyes water – we need to have a framework in which banks (like any other business) 
can fail in a way which does not bring the whole economy crashing down around them.

Almost five years since the Royal Bank of Scotland had to be nationalised, I’m not sure we’re anywhere nearer that goal.

As a nation, we are a global 
leader in the field of banking. While allowing for sensible reforms, we need to defend the industry in which we excel and which provides (and can continue to provide) so much of our national wealth.

We need more capitalism – where both success and failure 
are allowed – not less. Socialist ideas such as bonus – and, by definition, wage – controls are part of the problem – along 
with bailouts, both explicit and implicit.

The vast majority of us will never find ourselves in the position of receiving a multi-million pound bonus (any bonus at all would be a fine thing) but, for the sake of our economy and our biggest industry, we need to defend the right of banks to pay them, and for bankers to receive them.

To hear that George Osborne fought alone against the bonus cap last week is to think that he, and the Government, understands the positive role that banking has to play in our economy.

But to hear David Cameron
the next day continue to rail against the “croupiers in the casino” in the House of Commons is to think that perhaps we haven’t actually moved on from the childish rhetoric that has got us nowhere.

It’s time to move on. As the 
old saying goes: it’s time for 
less politics, and more 
economics.