For all the excitement generated over the reluctant decision by Stephen Hester, the chief executive of the Royal Bank of Scotland, to decline his near £1 million bonus, this is not a zero sum game.
Hester forgoing his bonus, which would have been paid in shares, does not mean, for example, that as a result there is more money in the public purse to offset against the ConDem’s austerity cuts programme.
Nor does it help hard-pressed RBS borrowers – from small businesses to home owners with mortgages. They will not be treated any more sympathetically by the bank when they struggle to meet repayments.
Will it prevent RBS from punishing hard-pressed workers struggling to make ends meet when they accidentally drift into the overdraft zone? I don’t think so.
Paradoxically, it seems that the shares, if they had been cashed in over the next couple of years, would have produced a tax take of around £500,000 depending on their market value at the time.
In other words, if Hester hadn’t taken home more than £11m in shares and cash since being brought in by New Labour to run the bailed-out bank in October 2008 (with a golden hello of 10.4 million shares), we in the shape of the 99%, would not be better off by the same amount.
As RBS bankers outside the boardroom form an orderly queue to share in a bonus pool worth an estimated £500 million in the next month or so, some are waiting to see how many shares they get under a scheme approved in 2009, when Gordon Brown was prime minister. John Hourican, head of RBS’s investment bank, could receive up to 21.3m shares in April – worth around £5m at last night's price – and options on another 7.4m shares.
What all this demonstrates is not only that the bankers hold the aces – there is clear evidence that the RBS board threatened to resign if the Treasury had tried to block Hester’s bonus – but that they also have absolute control over resources.
While the financial system continues to be run for profit to benefit shareholders and senior staff, no good can come of it. Quite the reverse, as we have discovered to our cost since the meltdown began in 2007. The state’s resources – aka taxpayers’ money - are despatched to bail out the system without delay so that things can stay as they are. The sums committed are then added to the deficit and result in more cuts.
All the remedies suggested by either the government or Labour leader Ed Miliband are designed to maintain the status quo of capitalist-owned banks that serve their own interest. Miliband, of course, was a member of a government that gloried the achievements of the bankers and financed large amounts of public spending from tax revenues from the financial sector.
Ed Balls, now shadow chancellor but then a Treasury minister, speaking to business figures in Hong Kong in 2006, remarked: “The UK’s financial tradition as a free, fair and open global market has resulted in tremendous growth in London’s international financial markets in the past decade – over-the-counter derivatives turnover up by 770%, foreign equities turnover up by 260%, cross-border bank lending up by 160% and foreign exchange turnover up by over 60%.”
Miliband is not opposed to bonuses – so long as they are “merited”! As for a one-off tax on bonuses – which Labour actually introduced in 2009 – that is hardly going to change what goes on.
As one comment on the Financial Times website noted: “What difference does Hester's bonus make to the billions already allocated to the rest of the banking community. Given the trillion the banks are now borrowing from the ECB [European Central Bank], I can only conclude that the banking community remains impervious to their financial reality. I wish someone would give me a bonus for defrauding my customers and still managing to go bankrupt!”
The real issue is about who owns and controls the country’s financial resources and what they are used for. Massive bonuses are a symptom of the problem – but not the problem itself.