Greg Clark is Financial Secretary to the Treasury and MP for Tunbridge Wells. Most Tuesdays he will be writing this new 'Letter from a Treasury Minister' for ConservativeHome readers. Follow Greg on Twitter.
A rite of spring is upon us again: the banks’ bonus announcements. For years now, these declarations have become an annual focal point of public anger. Certainly, many of the problems – and scandals – of banking in this country and overseas can be traced, directly or indirectly, to the way some people have been paid in the industry.
In the run-up to the financial crisis, trades and transactions in products of dizzying complexity were made by people whose apparent success was known to trigger National Lottery-style payouts – sometimes in advance of any profits actually being realised. With the downside risk of these bets falling on shareholders or – as it turned out – taxpayers, the gross distortion of appropriate behaviour driven by bonuses contributed to the vulnerability of the entire banking system.
Then – and now – we must never forget that the ultimate source of the money paid out to the Masters of the Universe was not some process of alchemy, but, in large part, the hard-earned cash of those who Leona Helmsley contemptuously called “the little people”: pensioners, whose investments were put into the British banking industry, that bluest of blue chip sectors; businesses, who saw funds that might have been available to finance their growth being diverted to pay packets; and taxpayers, each of whom had to stump up £2,000 to save RBS and Lloyds.