Bank Bonuses

Oral Answers to Questions — Treasury – in the House of Commons at 11:30 am on 29 April 2014.

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Photo of Angela Smith Angela Smith Shadow Minister (Environment, Food and Rural Affairs) 11:30, 29 April 2014

What recent representations he has made to the European Union on the proposed cap on bank bonuses.

Photo of Andrea Leadsom Andrea Leadsom The Economic Secretary to the Treasury

In September, the Government launched a legal challenge to the bonus cap provisions agreed under EU capital requirements directive 4. We feel that those rules were rushed through without any assessment of their impact and that they will undermine the progress we have made to try to align remuneration with risk by pushing bankers’ fixed pay up rather than down.

Photo of Angela Smith Angela Smith Shadow Minister (Environment, Food and Rural Affairs)

The Chancellor has chosen to prevent the Royal Bank of Scotland from paying bonuses to employees that are worth more than two times their salary, but he has not done the same with Lloyds. Will the Minister explain why what is good enough for RBS is not good enough for Lloyds?

Photo of Andrea Leadsom Andrea Leadsom The Economic Secretary to the Treasury

RBS has made a good start on its return to growth under Ross McEwan. It now has a good strategy to be the best small and medium-sized enterprise bank in Britain, but it still has a very long way to go. Therefore, we felt, and United Kingdom Financial Investments Ltd agreed, that the right think to do was to not allow RBS to do what other private sector banks have done, which is to go for the maximum of 2:1 in terms of bonus to salary. Lloyds, on the other hand, is much further along the road to recover, so it was fine to allow it, in line with other private banks, to go ahead with that 2:1 plan.

Photo of Julian Brazier Julian Brazier Conservative, Canterbury

May I say how good it is to see my hon. Friend in her new position? I welcome her answer. Does she agree that the best way to tackle widespread concern about excessive bonuses is through opening the banks up to proper shareholder inspection and answerability, as we are gradually doing?

Photo of Andrea Leadsom Andrea Leadsom The Economic Secretary to the Treasury

Yes, my hon. Friend is absolutely right. One of the priorities of this Government has been to ensure proper scrutiny of directors’ pay and remuneration, so the changes in the Prudential Regulation Authority guidelines introduced last year, strengthening improvements made by the Labour Government, are designed to do just that—to put us at the forefront of scrutiny and transparency in pay for banking.

Photo of George Mudie George Mudie Chair, Statutory Instruments (Joint Committee), Chair, Statutory Instruments (Select Committee), Chair, Statutory Instruments (Joint Committee), Chair, Statutory Instruments (Select Committee)

May I offer my congratulations to the hon. Lady on her much-deserved promotion? The whole House welcomed the Chancellor’s intervention to stop loss-making RBS pay these bonuses to its investment bankers. However, it has now emerged that RBS intends to pay that money as allowances. What is the Government’s intention on this matter?

Photo of Andrea Leadsom Andrea Leadsom The Economic Secretary to the Treasury

May I first thank the hon. Gentleman for his congratulations and say how very much I enjoyed working with him for several years on the Treasury Committee? As with many Opposition Members, there has been a lot of agreement between us on issues of competition and minimising pay. With regard to allowances, the key point to remember is that bonuses at RBS are down 68% overall since 2009. The figure we want to focus on is the restriction in pay and bonuses across that bank.

Photo of Chris Leslie Chris Leslie Shadow Chief Secretary to the Treasury

I, too, genuinely welcome the hon. Lady to her post and the Prime Minister’s decision to appoint her to the Chancellor’s Department. May I ask her to be very clear on this particular point? The Chancellor of the Exchequer is using the EU bank bonus cap legislation in respect of RBS, but at the same time the Government are mounting a legal challenge against that legislation. Will she clear up some of the confusion? She alluded to whether it was a UKFI decision, and it was reported that the Deputy Prime Minister apparently waded in to override the Chancellor. Was the Deputy Prime Minister at odds with the Chancellor, or was the Chancellor just at odds with himself?

Photo of Andrea Leadsom Andrea Leadsom The Economic Secretary to the Treasury

I am grateful to the hon. Gentleman. The key point to remember is that we are challenging the proposal at the European Court of Justice because we believe that it will not suppress remuneration and create proper equivalence between risk and remuneration in the banking sector. We in this country are at the forefront of trying to ensure that risk and reward are properly aligned. We do not think that the bonus cap will do that, so it is perfectly consistent to implement the cap—since it is the law—but to challenge it in the European Court of Justice.

Photo of Chris Leslie Chris Leslie Shadow Chief Secretary to the Treasury

I very much hear what the hon. Lady says, but I am asking a question about how the decision was made. Who was involved: was it UKFI; was it the Chancellor; or was it the Deputy Prime Minister who did it? I might not get a clear answer, so maybe I can move on to the next question: how much has this cost so far? It is a legal challenge to the change that she is herself using. How much has it cost so far, and is it a good use of taxpayers’ money?

Photo of Andrea Leadsom Andrea Leadsom The Economic Secretary to the Treasury

The legal challenge is in line with all legal challenges of this sort. To protect the British financial services sector, it is very important to try to challenge the proposal. There has been a House of Commons European Scrutiny Committee report on the cost of similar legal challenges. It is not excessive—it is £25,000 to £35,000, or of that order—but the point is that we in this Government are trying to align risk and reward, which is absolutely crucial for the success of the financial services sector.