Industry | 2009.08.20
A safe haven for super-rich | John Kampfner
The British deference to people paid far beyond their worth hobbles the FSA\'s new banking code
The supposedly beefed-up Financial Services Authority has announced that bonuses should be linked more closely to the long-term profitability of banks. But its watered down new code of practice amounts to little more than a gentle entreaty to Britain\'s financial services industry to behave better.
Few will be surprised by this latest show of timidity from the UK\'s financial watchdogs. After all, why change the habit of a globalised generation? But I did expect more from Adair Turner , the charismatic chairman of the FSA, and a man who has shown in the past a propensity to talk sense. In private, Turner has talked a good talk about sorting out the culture of greed and excessive risk-taking in the City. Yet after another successful campaign by lobbyists working on behalf of the financiers, the FSA has fallen short in its broader obligations to society.
The best explanation for the FSA\'s limp response is the one trotted out time and again about the importance of financial services to the UK\'s broader economy. The banks and affiliated institutions – hedge funds and private equity – have long been disproportionate drivers of the nation\'s wealth. Ministers are terrified to rein them in. The language – even now, after the crash – is fawning. Read just a flavour of the report published in May by a group jointly chaired by Alistair Darling, the chancellor, and Sir Win Bischoff, the incoming chairman of Lloyds, to appreciate how so little has changed. The UK\'s financial services are a "centre of excellence working in partnership with the world", it gushes.
It seems hard to imagine that these are the same people who – through arguably criminal activity – brought this country, indeed the world, to the brink of disaster. The extent of the mess was laid bare only todayby the latest unemployment figures (the highest since 1995) and an admission by the Bank of England that the recession is deeper than it predicted only three months ago. While some of Gordon Brown\'s measures to stave off a complete meltdown last winter were praised internationally, it is now becoming increasingly clear that Britain faces particular problems caused by its economic priorities of the past 20 years and its obsessive refusal to regulate.
What is most alarming is the continued refusal of ministers to draw the bigger conclusions, to understand the behaviour patterns underling the bankers\' actions. The case of Sir Fred Goodwin became the most potent symbol of the malaise. When Lord Myners negotiated the bailout of the Royal Bank of Scotland, he apparently forgot to look into the pension provision of Goodwin and other senior figures. "Fred the Shred" may have become a rhetorical national hate figure, but what have been the consequences? We were told to be grateful that he decided to forego part of his lucre.
In a letter to today\'s Guardian, 12 eminent business school professors called for a "windfall tax" on bonuses. It is good that they clubbed together and expressed their dismay. But I would hazard more than a guess that it will have negligible impact. Perhaps the weak response of ministers and regulators reflects an unhappy reality that most Britons do not seem to care. The anger predicted six months ago has failed to materialise. At the last count, some windows at Goodwin\'s Edinburgh home have been smashed , as was one window at the RBS headquarters in London during the G20 demonstrations. Such has been the scale of "people power".
Britons have long displayed a curious deference to people who are paid far beyond their worth. The most egregious cases might be concentrated in the banking sector, but they are by no means confined to it. One could, and should, look at the corporate sector more broadly, the media, the public sector – indeed just about every aspect of professional life (plus footballers).
Should top figures in our local authorities earn more than the prime minister? Would a finance director at, say, Salford or Southampton really up sticks and head for Stuttgart or Stockholm if he or she was told they were overpaid? Should our general practitioners and dentists really receive £300,000? Would the dozens of BBC executives raking in absurdly inflated salaries really get plum jobs working for American networks (they are all in inexorable decline) or independent production companies (who are cutting overheads fast) if their packages were cut in half? Even if any of this people did leave their jobs, would they be missed?
The only argument ever used for our largesse is the usually fictitious "brain drain". It might have been applicable in the 1970s, with tax rates prohibitively high and the culture resolutely anti-competitive, but we are a long away from that now. Indeed we have reached the polar opposite – the greed game.
What is needed is a candid conversation about wealth, its levels and its social and behavioural repercussions – but this is a debate that all main political parties are too frightened to have. At what point does one become excessively rich? The top rate of tax kicks in at £37,000 – already separating the 10% of haves from the 90% of have-nots. Perhaps it is £100,000, the figure the Liberal Democrats originally decreed to require a new top rate of tax (before they fought shy of the idea). Or is it £150,000, the point at which a 50% band finally begins to operate from next April?
Britain – the Britain of New Labour – has become the world leader in indulging the super-rich and the very rich. Forget for one moment issues of natural justice and social harmony: has this culture of greed produced better performance? Excessive wealth has not produced an incentive to improve the nation\'s lot.
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http://www.guardian.co.uk/commentisfree/[...]bonus-banking-greed-super-rich
