The Liberal Democrats’ Treasury spokesman in the House of Lords resigned last night in protest at what he saw as a cave-in by the coalition government on a deal over bankers’ salaries and bonuses.
Lord Oakeshott, who was a City fund manager for 35 years and advised Business Secretary Vince Cable when the Lib Dems were in opposition, while not a member of the government, spoke for the junior coalition partner on Treasury matter in the Lords.
Following his resignation, Oakeshott said that he was still determined to end “unjustified and outrageous” salaries in the financial services sector, adding: “I am afraid the banks have taken the Treasury for a ride. I decided that I felt more comfortable saying that from the bank benches than the front bench.”
He had previously told the BBC: “If this is robust action on bank bonuses, my name’s Bob Diamond [the boss at Barclays]”.
Under a deal hammered out under the codename Project Merlin, Chancellor George Osborne announced that directors’ pay would be linked to lending targets and insisted that no more than £2,000 could be paid in cash bonuses at bailed out banks, the Royal Bank of Scotland, Lloyds Banking Group and HBOS.
The banks have pledged to increase their lending from £179 billion to £190 billion this year, of which £66 billion will be earmarked for small-to-medium businesses. The aggregate 2010 bonus pool at HSBC, Barclays, Royal Bank of Scotland and the Lloyds Banking Group would also be less than 2009 to “reflect the public mood”, the Treasury said.
The four banks have likewise promised to publish the pay of their five highest paid senior executive officers on an annual but unnamed basis on top of the salaries of executive directors, which are already made publicly available.
Although publication will initially take place on a voluntary basis, the government plans to legislate that, from 2012, all large banks, including the UK arms of overseas firms such as Goldman Sachs, will have to publish the pay of all board members as well as their eight highest paid executives below board level.
But Lord Oakeshott said that there was no guarantee that net lending to SMBs would increase and that the pay disclosure measures had not gone far enough. He was also unhappy with the bonuses announced yesterday for Stephen Hester, chief executive of RBS (£1.45 million on top of his £1 million salary) and Eric Daniels, outgoing chief executive of Lloyds (£2.04 million).
“Whether those are paid in cash or shares, they still mostly come out of our pockets. I see the agreement says that they have to wait more than two years to cash in. A multi-million pound bonus is still a multi-million pound bonus whether you have to wait two years to buy the yacht,” Oakeshott told the BBC.
Vince Cable, who backed the Project Merlin deal, said that that underlying cause of excessive bonuses would not be tackled until the report by the government commission into the future of banking, chaired by Sir John Vickers, was published, however.
“We have a fundamental problem of excessive profits in the banking system, which has got to be dealt with through structural reforms. We cannot continue to have a situation where the banks continue to be underpinned by the taxpayer. That will deal with the problems of very large bonuses that are unacceptable,” he told the Guardian.
Cable also emphasised that the deal was only for one year and that, if the banks failed to meet their commitments, the government reserved the right to reopen discussions.
