CentreRight

A few home truths on banking bonuses

Our nation needs a thriving financial services sector. The spiritual home of the UK’s banking industry is in the City, but its importance as an employer and engine for economic growth extends throughout the land.

As the City’s MP I regard with dismay the attempts by some in public life to make banks and bankers scapegoats for the recession. We should recognise that many thousands working in this sector have already lost their jobs; others, relatively modestly paid, are fearful for their futures in finance. The great majority of bank employees are caught up in events outside their control or influence and are as bewildered as the rest of us at the collapse in their sector.

This only adds to my disbelief at reports that the directors of RBS and Lloyds Banking Group, entities which survive courtesy of huge taxpayer loans and guarantees, now propose to pay billions of pounds in bonuses to reflect performance over the last year. The public outrage at this news is entirely justifiable.

MPs must set the lead on public sector pensions by agreeing to a one-third reduction in their own benefits

Out in the real world beyond the Houses of Parliament there is growing alarm at the next tsunami threatening to engulf our beleaguered economy - the inequitable state of affairs between public and private pensions.

Businesses faced with the prospect of lean times or liquidation are being forced to look upon their pensions obligations with a more discerning gaze. In December, the Pensions Protection Fund revealed that Britain’s final salary schemes’ pensions deficit increased to £195 billion as companies struggle to raise funds. Meanwhile this week it was reported that more than half of those defined benefit pension schemes still open to new members will be closed due to the current economic situation. This came hot on the heels of a warning from the National Association of Pension Funds that we are likely to see final salary schemes being closed even to existing members.

The scrapping of pensions benefits, falling equity and bond yields, lower interest rates, increasing life expectancy and even the risk of employers’ default on pensions provisions all now combine to create a sobering economic outlook for those reliant upon occupational or private pensions. The government should take heed.

For amidst all this private pension gloom, the taxpayers’ bill for public sector pension provision seems to grow exponentially. People retiring from the wealth creating sector with inadequate, money purchase pensions – or in fact none at all from their failed employers – are not going to watch happily as folk from the public sector, whose wages they have paid over many years, retire on guaranteed index-linked final salary pensions. The greatest vitriol will no doubt be reserved for MPs whose gold-plated pension scheme will be even harder for people to stomach amidst private sector woe and further controversy over parliamentary expenses.

Brown should worry when voters reach the angry stage

Click on graphic below to enlarge it.

This week’s Populus poll suggests that we are still in the fear phase (just). Voters remain personally more optimistic about their economic circumstances than they do for the UK as a whole…for now. Political discourse remains focused more on the future than on writing and rewriting history.

A right to die or a duty to die?

To many people’s minds one of the most fundamental human rights is the right to life itself. As a corollary to what extent should an individual be entitled to end his life and how might the law best safeguard such assisted dying?

As recently as September, 23 year-old Daniel James was helped by Dignitas, a Swiss euthanasia group, to die in one of their clinics. A young, highly successful rugby player, Daniel had been paralysed from the chest down after an accident in the scrum. He was left unable voluntarily to move any of his limbs and found himself unable to bear the grim transition from capable, active athlete to tetraplegic. By the time he made his final trip to Switzerland, he had attempted suicide three times.

Procurement - a route to reducing expenditure and funding prudent tax cuts?

Public sector purchasing policy is not exactly a subject designed to make the pulse race. But perhaps it should. At a time when scrutiny of the public finances has never been greater, a prudent procurement policy offers a heaven-sent opportunity to rein in public expenditure.

Purchasing impacts the public sector more profoundly than you might imagine. Everything which is neither salary nor distributed as a grant or as welfare is regarded as a public sector purchase. We are talking things from IT systems (not noticeably good value in recent years), buildings and highly sophisticated defence equipment to stationery and travel expenses. For this an estimated annual budget of £150 billion is up for grabs. But whilst the science of sales is well known, the procurement industry is very much in its infancy.

Keeping it simple with public service broadcasting

My heart sank at the urgency with which politicians of all parties demanded to have their say as the Jonathan Ross/Russell Brand controversy went live. In truth shouldn’t this really have been a matter for the BBC governors?

Well, I am happy to confess that my initial instinct was wrong – the widespread public distaste at BBC Radio Two’s disastrous misjudgement to broadcast was heartfelt. Now that we can begin to look at these events with some sense of perspective, it is essential that UK public service broadcasting adapts to the challenges of the modern era.

Missing the point over bankers' remuneration

Populist posturing can never be far from politicians’ minds even during these tumultuous times in the global financial markets.

So it came as little surprise that Chancellor Alistair Darling’s parliamentary statement following the part-nationalisation of two of the UK’s four big banks focused strongly on the government’s decree that RBS and HBOS directors will receive no cash bonuses this year (and presumably for some time to come).

Surely this is a classic case of closing the gate after the horse has bolted. Incentives at banks for those financiers whose success is crucial if taxpayers are to be promptly reimbursed for this bailout are to be abolished. Meanwhile no action is to be taken to recast previous years’ banking profits to reflect a past reality that is becoming increasingly apparent. Whilst the credit default swap scandal unravels it is abundantly clear that this – and other forms of highly risky financial sleight-of-hand – mean that profits in the financial services sphere (and many bonuses) in recent years have, in part, been based on a fraudulent overstatement of turnover.

A more rational approach towards banking bonuses would be for government to attempt to claw back some of the over-inflated bonus payments of past years (some of which is deferred remuneration yet to vest). However, presumably this would also require HMG to repay vast amounts of corporation, capital gains and income taxes…

Power moves eastwards

We can all be forgiven for being bewildered by the implications of the turmoil in the global financial markets. Over the past seven months most of the UK’s biggest mortgage lenders – and all of the US investment banks – have ceased to exist as independent entities. We are witnessing the first signs of a seismic shift of power from the United States/Europe to China, Russia and the Gulf States.

I believe that the near collapse of the global banking industry will serve to accelerate trends which are already in play. Indeed the US economy may never recover its dominant position in global markets. With hindsight the current financial crisis may be as crucial to the undermining of US economic dominance as the outbreak of the First World War was to Britain’s.

The erstwhile expectation that by the middle of this century China and India will have attained the standard of living and international power on a par with the US now needs revising. We may be there considerably sooner.

Let's avoid another Cold War

Last month I paid a first visit to Russia as part of a parliamentary delegation. It was instructive to learn from leading figures in the Duma, and from British businessmen in Moscow of the Russian government’s perceived hardening attitude to the West and the media perception that another East-West Cold War is beckoning.
Whatever the rights and wrongs over Georgia this is no time for an ever deeper schism to develop in relations between Russia and the West. We need to build bridges not least given the overriding threat of Islamic fundamentalism. The global uncertainty caused by Islamic extremism and nuclear threats from countries such as Iran calls for the re-establishment of what had hitherto been relatively good relations in recent years between NATO and Russia and China.

Sir Ian Blair has resigned

Less than two weeks ago I wrote about the failings of Sir Iain Blair; Ian Blair has led the Met to the brink of disaster.  I highlighted political correctness, infighting within senior ranks and, of course, the Jean Charles de Menezes tragedy.  I am relieved at today's news that the Metropolitan Police Commissioner has finally done the decent thing and resigned.

The Home Secretary (who defended Sir Ian for far too long) must now work closely with Boris Johnson in appointing a successor who can deliver the kind of policing that Londoners deserve and that has been missing for too long.  I'm sure most of London's police officers will be relieved too.  They are in the frontline of many of our social problems and this saga cannot have been helpful to them.

Today's news is also a victory for Boris and for Kit Malthouse.  They've made it clear that Sir Ian was not their first choice to oversee London's policing.  There is now the opportunity of a fresh start.

New vision for our Post Offices

In the current debate over Post Office closures I believe the Conservative Party should be demanding a vision for expansion of the role of the Royal Mail or Post Office network. Any organisation whose performance and public reputation declines as the Post Office Group's has done over recent years will ultimately fail. Future strategy must focus on growth and innovation rather than simple retrenchment by management to cut costs.

This will require skilful managerial and political leadership over the years ahead. What is needed is a clear sense of mission for the organisation that identifies how the trusty, traditional Post Office brand will be refreshed.

A modern Post Office needs to be in tune with contemporary changes in technology and communication but also must play its part in civic society. If our business and political leaders simply hand over the reins to the needs of private company discipline then we risk throwing the network to the wolves.

All MPs have unsurprisingly had their constituents railing at them about the local closures - most people feel that it is appalling that a public service such as the Post Office, funded by the taxpayer, should be treated like a private business. For rural Conservative MPs the closure of the local Post Office has been marvellous ammunition with which to berate the beleaguered government. But what is our Party going to do about it when we get into power within the next two years?

Disasters can bring nations together if the political will is there

In December 2004 the tsunami disaster in the Far East showed that the community of nations had the capacity to work closely together to help regions hit by a natural disaster and rebuild its infrastructure. Global conflicts and disagreements were put to one side. Sri Lanka and Indonesia have today made tremendous strides in repairing their devastated regions. Money raised by individuals, charities and governments worldwide were almost without precedent after the tsunami catastrophe. The comparison with the Burma cyclone is quite stomach churning.

After the south-east Asian tsunami many countries, not previously noted for their financial and other help in such emergencies, found they could play a role in the relief effort. Now those same countries are being frustrated in the fact that their efforts are being declined by Burma’s leaders. With the earthquake in China coming hard on the heels of the disaster in Burma the world has once again been given the opportunity to offer rescue aid and has not been found wanting. These three natural disasters have drawn attention to the importance of political openness in receiving help. They have put under the spotlight the value of people living under the banner of freedom in a free world.

Supermarkets are to be rejoiced as a free market success story

Supermarkets are one of this country’s success stories. The Competition Commission has recently completed its third full-scale inquiry into supermarkets in the last eight years and given them a thumbs-up on most issues. The Commission's most recent investigation sought to establish whether consumers are receiving the benefits of vigorous competition. After about 550 submissions, 65 hearings and the receipt of data from 14,000 grocery stores, the commission released its recommendations back in February. Its conclusions indicate an overall "not proven"—indeed, one would argue, "not guilty"—verdict for supermarkets on the charges of pushing competitors out of the market, bullying suppliers and limiting choice.

By not speaking strongly against the supermarkets the report was consigned to the back burner of importance. This month I had the opportunity in parliament to raise the recommendations of the Commission’s report and raise some of the genuine concerns that I am sure many people have about the fast-changing patterns of high street shopping in recent years. The full debate can be found on my website. I am neither interested in burying nor unduly praising supermarkets but I believe that we should never forget that the well-stocked shelves of a supermarket represent the most visible signal of the success of free markets, choice and capitalism. Yet there are many detractors, most of whom seem to have an irrational and often downright hypocritical hatred of the success of big retailers.

I believe that the consumer has had a pretty good deal out of supermarkets over the last 10 years and after a long time of relatively inexpensive food we now have widespread increases in the prices of basic foodstuffs. But supermarket competition is providing a shop-around mentality to the benefit of all UK consumers.

The mortgage market needs confidence, not Government-backed loans

No doubt I am not the only Conservative to feel deep misgivings at this morning’s news of a £50billion Bank of England intervention to kick-start the high street mortgage market.  Not content with nationalising Northern Rock, the government that had “ended boom and bust” now under the auspice of the Central Bank seeks to build up a mortgage and credit card debt portfolio on an unprecedented scale.

Naturally this will be supported to the rafters by many amongst the banking fraternity; but it is worth remembering that it was the reckless lending and trading in complicated derivative products by the self-same banks that led to the credit crunch in the first place.

The effect of today’s initiative is further to conjoin the fortunes of this and any future UK government with the financial services sector.

No substitute for open disclosure

Another day....another bad news story from Planet Parliament.

Public dismay and disgust about the blatant misuse of MPs' allowances and expenses has turned to disbelief at the parliamentary authorities' desperate rearguard legal action to prevent disclosure of potentially damaging information demanded under Freedom of Information legislation.

This morning's instalment further beggars belief. Apparently the general public must be prevented from learning more about expenditure of taxpayers' money by seven Welsh MPs on the production and distribution of their annual report. Unsurprisingly this argument received short shrift from the Information Commissioner so, bit by bit, ever more information about MPs' expenses makes its way into the public domain.

These increasingly pathetic attempts at 'protecting privacy' are ever more reminiscent of the Nixon Administration's feverish - and ultimately self-defeating - legal manoeuvres to prevent public disclosure of the contents of the secretly recorded Oval Office tapes during the Watergate crisis.

The lesson of history is clear - there is no substitute for open, total disclosure and full transparency.

Conservatives should resist Rock shareholders' claims for compensation

Three observations today on Northern Rock:

1. The “temporary” nationalisation of Northern Rock has been forced on the Government as an implicit recognition that economically things are going to get worse before they get better. No one should assume that the uncertainty in the financial markets is a short-term phenomenon. For taxpayers to extricate themselves from Northern Rock without net losses is unlikely to take less than five years.

2. One of the biggest casualties in this whole affair must be Mervyn King, the Governor of the Bank of England, who has overseen this debacle. His credibility in the City has been severely damaged – it is difficult to see how he would be the right man to lead any Bank of England restructuring. By re-appointing the Governor for a further term so recently the Government has held in reserve a fall guy for the future. 

3. Conservatives should be resolute in resisting the claims of shareholders for compensation. This especially applies to the hedge funds that piled into Northern Rock stock in the autumn hoping for a quick speculative return. They gambled and they lost. No more taxpayers’ money should be expended on bailing out Northern Rock shareholders. It may prove tempting in the months ahead for the Party to make common ground with what is likely to be a well-orchestrated, high-profile challenge in the courts by shareholders’ action groups. It is a temptation we should resist.