Wrong target, wrong remedy
News that Gordon Brown is planning legislation to empower the Financial Services Authority (FSA) to control bankers’ bonuses typifies so much that is wrong with this Government.
First, the use of legislation to achieve its objective. I’ve lost count of the number of new laws that New Labour has introduced since 1997, but it’s a staggering amount, compared with the number enacted by previous regimes. It wouldn’t matter so much if they were wise, thought-through statutes, which achieved their objectives. But invariably they aren’t and they don’t. Too often it’s the law of unintended consequences that prevails. But then the real objective – as opposed to the stated purpose – is often simply to send a message to the electorate.
And that’s what’s behind the fuss about bankers’ bonuses. It has suited the Government to pin the blame for the sub-prime debacle and the subsequent recession on greedy bankers. This has successfully deflected attention and blame from politicians in general and Gordon Brown in particular. People forget that governments (in the US as well as the UK) were very happy for economic growth to be fuelled by unsustainable levels of Government spending and consumer debt. It was Gordon Brown who created the (failed) tripartite regulatory regime for financial services. It was Gordon Brown who justified the obscene bonuses paid to bankers on the grounds that they boosted tax revenues.
But that was then. Now the Government needs a scapegoat. And bankers fit the bill. Regardless of whether the bonuses are justified (and I strongly suspect they are not), legislation is not likely to stop them. You have only to look back to the pay policies of the early ’70s to see that Government attempts to control wages ultimately fail. The only real beneficiaries of this exercise in canutism will be the tax lawyers and accountants, who will devise any number of clever schemes to circumvent the proposed curbs.
There are, of course, ways in which excessive remuneration can be controlled. These are in the hands of shareholders, the ultimate owners of every bank. And, as it is the major shareholder in at least four of our largest banks, the Government already has the power it needs to veto big bonuses. But that wouldn’t send the same message to the electorate – would it?
