In defence of bankers and Fred the shred

by Peter Watt

If you are the Tories then you know that in general voters are wary of what you might do with the NHS, given half-a-chance. It is a political weakness for them. No matter what they say many people assume that their instincts are anti that most beloved of national institutions.

It is why David Cameron invested so much time and effort in trying to persuade people that his intentions towards the NHS were honourable in the run up to the general election. It is why he pledged, ridiculously, to protect NHS budgets when all others were being cut. He knew he couldn’t win on the NHS, but he hoped he could stop it being a negative for him. Now of course all of this has been blown out of the water by Lansley’s ineptitude, and the NHS is once again an electoral vulnerability for the government. A degree of trust so hard fought for so easily lost.

In contrast, the Labour Party is trusted by voters on the NHS.  It means that they could get away with reforming the NHS, maybe even make mistakes, and would still on balance be trusted.

What the Tories are trusted with is money. They are seen as being safer with other people’s money than Labour. They are seen as being pro-business and enterprise and being mates with city types. Labour is not trusted, is seen as not being close to business and to not understand the City. Which takes us to the present furore of bankers. The Tories know that their reputation for economic competence can withstand a bit of banker bashing. They also know that Labour is vulnerable on the issue but instinctively likes a bit of bashing rich types.

There is no doubt that bankers are unpopular with voters. Quite frankly you would be more popular saying that you worked in the illicit narcotics trade than in a bank with most people. But that doesn’t mean that banks aren’t important. They employ thousands of people. They are vital for trade and commerce. Financial institutions are a vital export and the City of London is trusted worldwide. So they are not just important, they are in fact a vital part of our economy. And on top of that, we currently have billions of taxpayers pounds invested in several of them. Their continued success is essential if we are to get a return on our investment. And people know this.

Which is why the recent epidemic of banker bashing by politicians on all sides is so incredibly irresponsible. How so? Well just look at what happened to the price of RBS shares after Stephen Hester was shafted. We might find the size of his salary unimaginable and the notion of his bonus off the scale. But in banking circles it was normal. And he was persuaded to take on the role of chief executive of a failing bank that had just become mostly owned by the state. He signed a contract with the expectation that if he did his job well the board would award him a further bonus. And the bonus that he was awarded was in shares that would increase in value if he continued to do his job well. A good example of the sort of measure that Ed Miliband has been calling for, that rewards a long term attitude to the running of business. Now, the governments’ shares in RBS are administered on their behalf by UK financial investments limited whose aim is to:

“protect and create value for the taxpayer as shareholder, with due regard to financial stability and acting in a way that promotes competition”.

And by having the shares administered at arm’s length, the government hoped to ensure independence for the boards of the institutions that it held shares in. And yet, having rightly established this precedent in government, the Labour party has lead a politically expedient witch hunt against Stephen Hester.

The government decided not to resist too hard and not surprisingly Hester had to agree not to take his bonus. Brilliant. I bet all of those Chinese and Indian financiers are queuing up to invest in UK banks with political interference in the running of the system suddenly popular. I mean, if the bonus was wrong, why not start putting pressure on directors’ salaries or investment decisions? Perhaps we should have political appointments on boards. I am sure that will do wonders for the value of nationalised bank shares. But still, at least we bashed some bankers. Well done us.

And the government has clearly decided that it doesn’t want Labour to have all of the fun, so it started a witch hunt all of its own. Fred Goodwin has broken no law, was feted by the FSA, by (Labour) politicians and was supported by his board. Ultimately he was a disaster for RBS, but does that justify his tasteless and unedifying public humiliation?  But what the hell, he wasn’t just a banker – he was a bad banker. He had it coming. Let’s not talk about anyone else involved in the RBS debacle, as long as the pin-up boy for all that went wrong gets publicly flogged. The public need a bit of distraction, so let’s throw them some meat. The Tories can look popular, goad Labour for their role in the decision to knight him and no one gets hurt. Of course Labour secretly love it as well and have welcomed the decision. Well personally I don’t, I have found it distasteful.

But, aside from the bad taste left in the mouth, there are political consequences of all this. The Tories can get away with some minor skirmishing with the City. They may well benefit in popularity by calling on Stephen Hester to give up his bonus despite the impact on the share price and worldwide reputation of the City. De-frocking Fred the shred may well gain them plaudits. After all they are absolutely seen as being pro-business and the City. Labour though is not seen as pro-business and cannot get away with it for long.  Labour was tempted by the Tories to indulge in attacking bankers and they couldn’t help themselves. But in contrast it looks like they are playing up to their anti-business and anti-City rhetoric. In chasing short term popularity they have simply further undermined their economic credibility for the long term.

But worse than that, many have rediscovered their inner class warrior; and they liked it.  They will not be able to resist temptation again.  Andrew Lansley must be very relieved.

Peter Watt was general secretary of the Labour party.


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10 Responses to “In defence of bankers and Fred the shred”

  1. Alex Ross says:

    The thrust of this article is correct so its disappointing it falls for the Guido myth that RBS’ shares fell due to Hester rejecting his bonus.

    The shares of every bank in Europe fell that day because of fears about Greece. The idea that the biggest issue moving bank shares is the bonus paid to a director is a bit daft once you actually stop and think about it.

    There are bigger things going on in the markets than bank bonuses.

  2. Nick says:

    Which is why the recent epidemic of banker bashing by politicians on all sides is so incredibly irresponsible.

    ============

    Quite.

    However you have forgotten the moral issue.

    If he is now Fred the Pleb because he bought the honours system into disrepute, what about Lord Clarke?

    It’s official that we are not allowed to know what he did because its been declared a fact, that for us to know would bring the Lords into disrepute.

    Are you going to be calling for him to be targeted?

    Given Godwin lost his honour because of causing a financial loss, where does that leave Gordon Brown? Lets have his pension. He lost billions when he sold Gold low, and banks high.

    Far more deleterious impact that Fred the Pleb.

  3. Plato says:

    Yup.

    EdM called for ‘class war’ at PMQs and labelled the HMG front bench ‘millionaires’.

    Well he’s on a sticky wicket there given the £1.6m house he lives in, not to mention the eye-wateringly large bonuses Mr Byrne earned in a previous life. Or perhaps Gordon and his multiple second jobs and his own brother using a tax loophole to trouser tens of thousands from an investment company. I won’t mention Labour’s most famous millionaire…

    I watched with horror as Ed went down this path – anti-aspiration, a witch-hunt into bankers still to be held in HoC despite forcing the issue terribly re Hester, anti-performance related pay, voting against benefit cap – and on and on.

    Oh and EdM attempted to ridicule Cameron on chocolate orange pricing only 3 days before. Not like the PM has something better to do right now. FFS.

    Mondeo Man wouldn’t touch this Labour Party in a month of Sundays.

    There were over 1200 comments on the BBC’s HYS last night – and 98% were outraged/astonished at the Raymond case study. 800 fags, 100 tinnies, 20 pints out down the pub, everyone with a mobile phone and Sky Movies paid for by workers who take home less – and can’t afford to do any of these things?

    And Labour voted against this? Repeatedly? Whose side are they on?

    No wonder voters don’t trust the Party with their money. It’s right there in front of them. Along with loads of other examples like £12bn down the drain on an IT system that will never be turned on – that’s £12, 000, 000, 000 wasted.

    I disagree with your view re Mr Goodwin – he received his K for ‘services to banking’. He clearly didn’t deserve to retain it. His hubris was gargantuan and its removal was highly symbolic.

    The hounding of Mr Hester was however appalling – a man who had never been in banking before taking on the RBS mess – shafted by the Party who drew up his employment contract simply for doing his job. Marvellous. What a great precedent.

    If EdM thinks any of this behaviour makes him more electable, he’ll be waiting a very long time to find out.

  4. There is little to disagree with in this article but the danger to 10% of our GDP is that banks and bankers have become hostages to political fortune. As for Stephen Hester’s bonus, whether anyone of whatever political persuasion likes it or not, this was only made possible by his contract drawn up towards the end of 2008 by the Treasury, of which Yvette Cooper was then chief secretary, approved by Chancellor Alistair Darling and authorised by PM Gordon Brown.

    Nor does it serve Ed Milliband well to now trumpet his opposition to this bonus. Most people outside of the Westminster bubble realise that if he really felt this to be such an important issue, why didn’t he say so at the time, when the bonus entitlement was much bigger than today?

  5. aragon says:

    “But worse than that, many have rediscovered their inner class warrior; and they liked it. They will not be able to resist temptation again.”

    Popular with the party – whatever next ? Reassurance Labour ?

    Peter is wrong about the Banks, they should by charged under RICO is the USA.

    “I mean, if the bonus was wrong, why not start putting pressure on directors’ salaries or investment decisions?”

    Light blue touch paper and retire … but Yes, reform required!

    Plato:
    “a man who had never been in banking before taking on the RBS mess”
    Abbey National, Credit Suisse First Boston, Santander, Nat West – Google him.

    Don’t know about BBC HYS comments.

  6. Jane says:

    I very much agree with what Plato has written other than the removal of Fred Goodwin’s Knighthood. I understood that in 2009 when there was furore over his pension, it was decided that he would retain the Honour. I loathed what happened at RBS but Mr Goodwin had the blessing of the RBS Board, the First Minister and the Prime Minister. I therefore feel he has been scapegoated and this is for political purposes only. It follows that we need to remove honours from scores of people who took risks in business which were then unsuccessful. Let us start with the House of Lords as it is preposterous that legislators retain their Honours having served custodial sentences or indeed, ripped off the taxpayer in claiming expenses. Many were suspended because of (criminal and not prosecuted) behaviour and they too are unfit to hold any honour.

    Mr Hester has been treated absymally. This man was headhunted by Gordon Brown to turn the bank around in the interests of the taxpayer. He was given a remuneration package commensurate with his previous employment. He also had a track record as he helped the government in sorting out the Northern Rock fiasco. He did not accept his bonus the first year – generous gesture in my opinion. He was obviously hounded into rejecting it this year too. Disgraceful political manoevring in response to a press which few of us read.

    You are right Peter in saying that the party is coming across as anti business and anti the City of London. Indeed, the head of one business organisation said this week that the last person who supported business was Tony Blair. Who are the party trying to please – those on the left only? They certainly are not appealing to all citizens – I find their rhetoric confusing. Are they out to please the left or are they just seeking to find issues which the media are stirring up and that they think people are angry about? Is it just to make headlines?

    As to class warrior – they will never learn. They ignore aspiration at their peril. It was amusing at PMQs this week the comment about the Shadow Cabinet being millionaires. Forgive me, but I read in the Guardian some time ago that Mr Miliband’s wealth is estimated at £2.5m. I am extremely disappointed when I listen to individual shadow cabinet members whom I once respected spouting out left wing rhetoric which I have never heard from them before. I feel totally alienated and it is a sad state of affairs when a Conservative PM represents my views. Loyalty to a political party is shifting. Many labour voters left in disillusionment at the inept Mr Brown. We will not fear doing it a second time….

    Some of his ideas re boardrooms are not feasible. I only have to read what Alastair Darling says regarding workers representation to rubbish them. David Miliband’s article in the New Statesman today goes someway to identify what is happening to the party. I would also add that listening to Ed Miliband is interesting. It takes me back some 40 years to my student days when debates were spurred by idealism and youth. He has many advisers, has lost weight, learnt to use his hands in speech and yet comes over as unworldly, inexperienced and awkward.

    Mr Miliband speaks for the workshy. The convoluted and dishonest amendment on regional differences to the benefit cap was a disgrace given we all know that within every area, there are expensive and inexpensive areas to live. It follows that when we look at pay differentials in the public service by region – they will support this proposal which their trade union backers are against? If they want benefits paid by cost of living index by region then they must surely support regional pay and do away with national bargaining? All I see is opportunism, attempts to achieve popularity or reassurance to the core vote as David Miliband puts it. They treat the electorate with contempt in not acknowledging that we are enduring problems at present not only because of the world meltdown, but because of the policies pursued by the last government. This relates to lax financial controls with soaring of salaries, bonuses and personal debt. It also relates to the vast numbers of people who will not work as one receives a higher income from the State (taxpayer). This culture of the state will provide and personal responsibility does not matter has increased dramatically in the last decade. It is shameful and diminishes us as a nation.

    I would be ashamed to have EM as PM representing the Country…..

  7. @Peter: great piece, for which I imagine you will be little thanked, but thank you.

    @Aragon: you are usually wrong about most things, but you are quite right about Hester. In fact, he was once my boss’ boss’ boss. So I know this to be true, sorry Plato.

    For the record, my own take on bankers from last year rather agrees with Peter’s, here.

  8. John P Reid says:

    Brilliant

  9. David says:

    Utter crap. Bankers such as these are just bureaucrats. They are not wealth creators. This isn’t class war, it’s about those that are ‘in’ building fences against the rest. Including business. Being against greedy bankers is to be pro-business. Being for greedy bankers is to be pro-establishment. Take your pick.

  10. Les Abbey says:

    I think the message here is, ‘whatever the party does it should never, never sound like Labour’.

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