Vince Cable is expected to announce a ‘wide-ranging’ consultation into banking executives’ pay today, following warnings that the industry could be heading for a “train crash” if it continues to award staff huge bonuses while refusing to lend money to businesses.
On the closing day of the Liberal Democrat party conference in Liverpool, the Business Secretary will launch an outspoken attack on City greed and self interest as he seeks to calm fears over the direction that the coalition government is taking.
After talking about “murky” corporate practices that threaten UK firms, he will announce a consultation into issues ranging from bankers’ pay, the role of directors and investors during takeover battles and how shareholder influence over corporate decision-making could be increased. The aim is to explore what drives market short-termism in a bid to improve current business behaviour.
“The government’s agenda is not one of laissez-faire,” Cable will insist. “Why should good companies be destroyed by short-term investors looking for a speculative killing, while their accomplices in the City make fat fees? Why do directors forget their wider duties when a fat cheque is waved before them?”
The speech follows warnings by Cable at a fringe meeting at the party conference yesterday that banks would likely find themselves on the receiving end of an “enormous kick-back” from politicians who would go on the “war path” unless they increased current low lending levels.
His comments coincided with fresh data from the Bank of England that showed lending to businesses dropped by £2.5 billion in July, the fifth consecutive month of such falls. The figure compared with a £3.2 billion reduction in June, but small companies continued to bear the brunt of the credit squeeze.
If the situation did not change, however, Cable suggested that the government could take tougher steps, including an increase in the banking levy imposed on large organisations in the budget, which is expected to raise £8 billion over the next five years. Other possible “sticks” included introducing a bank transaction tax, but deciding on whether to go down that route would “partly depend on how the banks behave”, Cable said.
