Yesterday the government held up its ineffectual hands and admitted that UK banks would once again be paying out billions in bonuses this year, despite heavy tax-payer funding and a strong political dialogue of anti-bonus rhetoric.
After the general election in May, the coalition proposed to “bring forward detailed proposals for robust action to tackle unacceptable bonuses in the financial services sector; in developing these proposals, we will ensure they are effective in reducing risk.”
Fortunately for the government, a series of new rules and regulations were already being formulated by the FSA and the European Union. After weeks of deliberation and concessions, both the FSA and the EU agreed to tie bankers and bonuses into the fate of the organisations they were employed by.
In an effort to reduce the possibilities of another financial crash, bonuses, which were seen as an integral part of the downfall of the system, were significantly reformed after the global banking meltdown. In compliance with the new rules, at least half of the bonus must now be paid in shares, a high percentage of which cannot be cashed in for years to come.
By tying the majority of remunerations into the banks, both the government and the EU hope to reduce the amount of risks bankers undertook in the name of higher bonuses, after all its one thing to gamble with someone else’s money, but it’s an altogether entirely different ballgame when it’s your nest egg at stake.
Though the government is quite content to let the banking sector rake in billions, so long as it abides by the EU and FSA regulations, there is now clearly an emerging limit on how much dissent and disregard for the economy as a whole the coalition is willing to allow the financial sector to get away with, especially in the glaring light of the UK media and the court of public opinion.
For nearly two years, both the present and previous governments have attempted to cajole and berate UK financial institutions into lending more money to small businesses, to help boost the struggling economy. Banks have clearly been reluctant to do so, instead preferring to look after their own balance sheets.
According to the BBS business editor, Robert Peston, there is now real pressure on banks and institutes to promise aid and lending to smaller businesses. With the re-emergence of bonuses in the billions, both political point scorers and the general public are looking for some sign of penitence and reimbursement from the financial sector.
Mr Peston suggests that the financial sectors failure to join in Mr Cameron’s and George Osborne’s “big society, we’re all in this together’ rubbish will most likely result in increasing “political pressure on ministers to punish them – perhaps through the implementation of a new tax might become impossible to resist.”