UK Politics

Vince Cable warns banks over 'outrageous' bonuses

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Media captionVince Cable: "These [bonuses] are underwritten by the taxpayer, I think that's what sticks in people's throat."

Banks could face more taxes if they pay out "outrageously large" bonuses, the business secretary has warned.

Vince Cable said the government had to make the British economy safe and would not be "blackmailed" by banks threatening to leave the UK.

He said there was a range of sanctions available from getting banks to give more details of bonuses, to taxing high profits or financial transactions.

Ministers had been warned to expect a "very large bonus payout", he said.

Mr Cable's comments followed a similar message from his party leader, and deputy PM, Nick Clegg, who said the government would not "stand idly by" if "offensive" bonuses were handed out.

A bank levy set to raise £8bn over four years is due to start in January but Mr Cable and his party leader both suggested on Tuesday that the government could go further if necessary.

Mr Cable said bankers should not walk away with "outrageously large sums" while others suffered because of a crisis caused by banking.

He told the BBC that, at the modest end of the scale, the government was looking at how to implement the Walker report into the corporate governance of UK banks, and force banks to disclose more information about bonus payments.

Bumper bonuses

"At the other end of the scale, there are potentially quite tough sanctions in terms of tax policy," he said.

"If banks are saying to us they have got lots of money to spread out on bonuses and indeed dividend payments at a time when they are constricting credit to small and medium enterprises, then the government may have to use some form of taxation to change their behaviour."

He suggested the government could look at a tax targeting high profits or financial transactions and the chancellor was looking at the feasibility of sanctions.

But he said there may have to be a combination of measures, from tougher regulation, more disclosure as well as tax.

"I don't think the banking community should assume that the government doesn't have any potential sanctions, because it does," said Mr Cable.

Asked about the possibility of banks leaving Britain he said: "We have to make the British economy safe and we can't be blackmailed by constant threats to walk away."

Mr Cable told the BBC it was not just Lib Dem ministers, but also Conservatives who were concerned.

He said the temporary tax on bonuses brought in under the Labour Chancellor Alistair Darling had raised more than expected but had not changed banks' behaviour, which was something the government wanted to tackle.

BBC political correspondent Laura Kuenssberg said Chancellor George Osborne had already said he was looking at the International Monetary Fund's suggestion of a Financial Activity Tax (FAT) on remuneration and profits and was seeking international agreement for it.

Treasury sources said that the FAT would be discussed at the IMF and G20 ministerial meetings but no announcement was expected before the Budget next spring

Sir George Matthewson, the former chairman of the Royal Bank of Scotland, agreed there was a need for restraint on bonuses, but said being too hard on the banks could harm economic recovery.

He told BBC Radio 4's World at One: "In order to get out of this recession we need strong banks and we need a banking system that is functioning properly.

"But I don't think that the level of hostility that is being evinced is making a contribution to the major problem. I'm not an apologist for the bonus system, but I do think that the directors, the management of the banks, are trying to run them for the benefit of the shareholders."

Earlier Lib Dem leader Nick Clegg told BBC Radio 4's Today programme the government reserved the right to take "very serious action" on "unjustified bonuses".

He said: "I think it is very important that the banks understand that you cannot possibly award yourself ludicrous sky-high bonuses in an industry that has been bailed out by the taxpayer when those same taxpayers are now having to make very serious sacrifices in their own lives."

In his final pre-Budget report last year, Mr Darling unveiled a one-off 50% tax on bank bonuses above £25,000, to be paid by the banks rather than individuals. In the Budget in March Mr Darling said it had raised three times more than forecast - £2bn. According to figures revealed by the Office for National Statistics on Tuesday, that figure has been revised up to £3.5bn.

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