Bank bonuses 'to run to billions in 2011'

Canary Wharf
Image caption The scale of bankers' bonuses remains a controversial issue with the public

The government is resigned to UK banks paying out billions of pounds in bonuses this year, despite its calls to curb the payments, the BBC has learnt.

The best the coalition can hope for is a declaration from the banks that they will pay out less than they would have without government intervention, said BBC business editor Robert Peston.

The government is also looking for banks to lend more to small businesses.

Business Secretary Vince Cable has been vocal in his opposition to big bonuses.

He told the BBC last month that the coalition government was "fully signed up" to "robust action" in curbing bonuses.

Bonus rules

Royal Bank of Scotland may pay nearer £1bn in bonuses than last year's £1.3bn, while Barclays may pay less that the £5bn-£6bn in total remuneration that its results from the first nine months of last year suggest are due to its investment bankers, our correspondent said.

But even if bonuses are cut, salaries have risen significantly to compensate, by up to 40% in some cases, he added.

One Labour MP and member of the Treasury Committee criticised what he described as the government's lack of action over bonuses.

"In 2009 the chancellor [George Osborne] said government should act in light of unacceptable bank bonuses stating that we could not wait for the 'promised land of a responsible bonus culture'," said Chuka Umunna.

"But, now in power, he chooses to sit on his hands."

He called on the government to introduce a remuneration disclosure scheme, requiring banks to reveal how much their senior employees earn.

Deferred rewards

Banks have already begun re-balancing pay packages following new Europe-wide rules on bonuses agreed last summer and confirmed last month.

These include introducing independent remuneration committees and setting maximum levels of bonus payments as a percentage of basic salary.

They also include deferring between 40% and 60% of bonuses for between three and five years, paying half of them in shares rather than cash and excluding any rewards for failure.

These particular rules are designed to curb the kind of short-term risk-taking by bankers that some observers argue contributed to the financial crisis.

In the UK, some of these rules will only apply to the big banks - smaller firms, including some banks as well as hedge funds and asset managers, will be exempt.

UK banks have long resisted the further reductions in bonus payments that the government has called for.

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Media captionDr Peter Hahn, from Cass Business School, said financial sector job creation could suffer if government legislation limited bonus payments

'Politically uncomfortable'

The UK government has pumped billions of pounds into the banking sector, and has bailed out both Royal Bank of Scotland and Lloyds Banking Group.

As a result, many have argued that it should have a greater say in how much banks pay out in bonuses.

However, the banks argue that they cannot dramatically reduce bonuses without the risk of losing top staff to banks based overseas, which are under less pressure to cut the payments.

"As UK taxpayers, we have a stake in RBS and we want it to succeed," said London-based headhunter John Purcell.

"It might be politically uncomfortable and possibly socially disturbing, but it's realistic economics and I think we've just got to suck it up. That's the way it is."

He added that there were "bucketloads" of firms where bankers could choose to work if they were not offered an attractive enough deal.

Efforts of Stephen Hester to save RBS "should be applauded, not lambasted by politicians looking for a cheap shot," Mr Purcell said.

Increased lending

As a concession to bonuses, the government wants the banks to commit to lending more to small businesses, which is seen as key to boosting the economic recovery.

The banks have been criticised for not lending more to help businesses throughout the downturn.

For their part, the banks argue that the demand for lending has dropped off, as businesses look to consolidate rather than invest.

They also say they are under pressure from the government to hold more cash in reserve to protect themselves better against any future financial crises.

Our business editor said he would be "staggered" if the banks did not come up with promises of new finance for smaller firms.

"If they failed to do so, the political pressure on ministers to punish them - perhaps through the implementation of a new tax - might become impossible to resist," he said.

Your comments

No bonuses should be paid until the banks have paid back the money put in by the government. Losing these so called 'top staff' is a red herring, as they put us in the mess in the first place. I doubt other countries will be falling over themselves to recruit them. Keith Lewis, Fareham, Hampshire

I work in banking and I am expecting a bonus and rightly so - my bank came out the best from the crisis and we are the leaders in the market, after everyone here has been slugging their guts. Jon, London

The government is being spineless in allowing the banks to allocate billions of pounds to bonuses. Especially at a time when the government have increased VAT to 20%. Is this another example that we are 'all in this together'? Paul Ride, London

Bankers operate in a certain market, and as very hard working professionals surely the market should determine their remuneration. It's ridiculous that benefit dependant individuals ridicule bankers and their salaries, often ignoring the 15 hour days they work and the £20,000 debt they have incurred through university, plus, the immense stress their job inflicts on them. Essentially, this is a market in which the brightest professionals operate, they work hard, long hours and most importantly their work pumps billions of pounds into the economy. Rajan Thaper, Rugby

Until recently I had my own company which failed largely due to the banks pulling the funding that had been promised. Then I hear large bonus payments are going to the banking industry. Have these people got no conscience? The country is on its knees, yet these people are the only ones not feeling the bad times it's disgusting! Kevin Jones, Runcorn

I do expect a bonus and it must be more than last year, as my employer has made a much bigger profit. If they want to stop bonuses - even though I don't understand how governments can dictate pay policy to private companies - then all my employer has to do is pay me overtime, at double pay, for all extra hours I do and I'll be quids in. Banker, London

It is an utter disgrace that the government has allowed this to happen. They should introduce a 90% bank tax for banks and executives until they repay all the money back that they owe the public. I'm a pensioner who has just seen my savings disappear and have been left with very little. Peter Brown, Stockport

I'm in the public sector. In government departments there have been no pay rises this year and on an a salary of nearly £25,000 you would only get a bonus of about £500. That's a bonus rate of 2%. In the case of the bankers, they have been paid in some cases over 100% of salary in bonuses, plus company pension contributions. Paul, Swansea

Britain is the worst place in the world to live as someone earning £1m or more - with a 50% top marginal rate on both employment and savings income. As bitter as people are, these measures will not produce the results they want. There comes a time when banker-bashing moves from expediency into simple envy. The government is the main culprit. London's financial centre contains a large number of very talented, highly mobile individuals who could work anywhere in the world but who choose to be in Britain and contribute around 20% of the entire tax take. Stephen, Canary Wharf

Just a thought, if the bankers that we are so worried about leaving our great country are so good at there jobs, how come we have ended up in the mess we are in? I am sure that there are lots of qualified people, who would love the promotion to replace the ones that leave and at a reduced salary and bonus package. Don Rees, Poole, Dorset

I think we need some perspective, only a very small number earn the vast sums that get thrown around in the media and whilst the masses may earn good bonuses - most will pay 40 to 50% in tax. Their take home pay will be spent, in general, on goods in the UK economy. Why do we constantly look for scapegoats when things go wrong? Everyone had a part to play in recent years, irresponsible lenders and borrowers a like. City worker, London

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