News from The Labour Party

Ed Miliband blogs on the RBS bonus controversy

Ed Miliband MP, Leader of the Opposition, writing on his blog today, said:

Having returned from the meeting of business, media and politics in Davos to the storm around RBS bonuses, I would like to offer some broader perspective on this debate.

It was only my second time in Davos, but what struck me was that – even there – the issue of how to make capitalism more responsible is firmly on the agenda. The vast majority of those present seem to realise a certain type of capitalism has been found wanting. The model was too dependent on financial services to the exclusion of success in other industries, too much in grip of certain vested interests, and too often led to huge inequalities of wealth and income.

The reality is that we must – and I think we can – find a better way to live together. One of the most controversial questions is on pay and reward. This has recently focused of the row over bank bonuses in general and the Royal Bank of Scotland in particular. What is the real problem here? In my view, it is based on around three issues: fairness, the link between reward and performance, and public consent.

First, fairness. RBS is state-owned with the Government as the biggest shareholder. That puts a particular responsibility on government to ensure that it participates as an active shareholder as it has urged others to do.

At the same time, this government is imposing a pay freeze and then 1% pay rises on other public sector employees. Labour has supported that latter measure because we recognize that in in tough times there is less money around. In such circumstances, I believe the Government has a particular responsibility to practice what it preaches about the role of shareholders in restraining top pay.

Second, there must be reward for those who do well, but it must be linked to performance and it should not be a one-way bet. The problem in the current case is that while nobody doubts Mr Hester has done a decent job, there are grounds for real doubt about whether this really justifies a bonus which practically doubles his salary. For example, the Chancellor explicitly said that reward would be linked to performance in small business lending but we know RBS failed to meet their Project Merlin targets in the third quarter of last year.

The wider issue is about risk. Entrepreneurs who start at the bottom and grow businesses are taking genuine risk with their own money. Too often, there does not seem to be much risk associated with pay and bonuses at the top.

Third, a market economy exists within a framework of public consent. There are all kinds of reasons why people feel dissatisfied with the system now: most importantly what is happening to their living standards. They are being squeezed, while the spiraling salaries and undeserved rewards at the top seems to be unaffected what is happening everywhere else. In tough times, here are choices to be made which tell you a lot about political parties’ values. We are calling for another bankers bonus tax this year to get 100,000 young people back to work. The Government, while presiding over a rise in young unemployment to the one million mark, is giving the banks a tax cut.

Many businesspeople really dislike the public nature of the controversy over their salaries. They feel they work hard to try and make Britain a better place. Most of them do and they deserve applause, not opprobrium.

That is why Labour is calling for a clearer, fairer system of remuneration to deal with this issue. I am disappointed the Government failed to support all the recommendations rom the High Pay Commission because, if you really care about consent, having one employee on the board of each remuneration committee is something for which agreement should be easy to reach. Put it this way, would not the RBS board have been in a stronger position if it had an employee representative out there arguing the case for a salary and bonus which had been justified and voted upon in a fully transparent, accountable way?

My hope is that business can lead the agenda on reform in this area with people like Richard Lambert, the former Director-general of the CBI, already showing the way.

Indeed, there is a clamour for change coming from many places. People are demanding not a change for one year or from just one bank, but lasting change. The global financial crisis did not just cause great damage to Britain’s economy, it changed what we are prepared to tolerate, what we regard as fair. I think that is because we have come to understand the causes of the crisis: we have seen that our country is too much in grip of certain vested interests and made too vulnerable by their reckless pursuit of wealth. We are determined that we will not go back o business-as-usual.

Finally, a word about the utter failure of leadership by David Cameron . He has been found wanting and been found out on this issue. His words on January 19 could not have been clearer. Asked by James Landale of the BBC if he would veto million pound bonuses at RBS, he replied “The short answer is yes.”

Having said that, it is now ridiculous for him either to suggest he cannot do anything about it now – or pretend he has achieved that pledge by ensuring Mr Hester’s bonus comes just short of seven figures.

Mr Cameron and George Osborne are caught between what they really believe and what the public thinks. They do not give a monkey’s about tackling irresponsible capitalism or indeed the bonus culture. Their first priority for a tax cut still seems to be the 50p rate for people earning £150,000 or more a year. Neither Prime Minister nor Chancellor really believe government has a role in setting rules which make systems work better for most people rather just the wealthiest few. They will get nowhere trying to blame the last Labour government because they have broken their promises on this issue. Instead, people will judge them by their deeds which show them to be utterly out of touch.

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