The Labour party has called on the government to act upon EU rules that would cap the bonuses paid to banking executives.
Chris Leslie MP, Labour’s shadow chief secretary to the Treasury, made the calls after reports that the cap is set to be doubled by the chancellor George Osborne.
He said that approving the increase “cannot be right” at a time when families are facing a cost of living crisis and bank business lending was “failing”.
“As the majority shareholder, the government should reject any request from the Royal Bank of Scotland (RBS) to increase the cap”, Leslie said.
“We will put this to a vote in the House of Commons as part of our opposition day debate on the government’s wider failures on banking.”
Leslie also criticised the chancellor, saying that it should not take EU orders to rein in excessive bonuses for bankers.
He added, “The case for repeating Labour’s tax on bank bonuses, to fund a compulsory jobs programme for young people, is getting stronger by the day.”
RBS, which is still part state-owned after being rescued in the aftermath of the 2008 financial crisis, was recently criticised by entrepreneur-in-residence at the Department for Business, Innovation and Skills, Lawrence Tomlinson, who said there were “concerns about some banks’ strategy for improving their financial performance”.
Andre Spicer, professor of organisational behaviour at Cass Business School, said, “Paying bankers large bonuses for short term performance is a recipe for disaster. It incentivises very risky behaviour, undermines performance, destroys shareholder value, and creates systemic problems the taxpayer is forced to cover.
“A common argument is that banks need to pay large bonuses to attract the best talent – however, in the lead up to the financial crisis, this war for talent pushed bonuses to an unreasonable level which increased risk profiles, and undermined bank performance.”
Spicer added, “The only people who benefited were a small elite of bankers. A rise in bankers’ bonuses was a major factor in increased wage inequity in the lead up to the financial crisis.”