Tonight:
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SIR FRED GOODWIN is said to be shaken. As well he might be: the windows of his family home have been smashed, his car damaged. If he didn't understand the level of hatred his behaviour has induced, he does now. He fears, rightly, where it is heading. Suddenly, his decision to take a pension of £700,000 a year from a bank the taxpayer has had to rescue looks extremely misguided indeed.
But it's not just Goodwin who is afraid. In one fell swoop, bankers have gone from being swaggering cocks of the walk to terrified pariahs. Even among their own social milieu they're sheepish. When asked at dinner parties, they increasingly mumble, almost ashamed, what they do and where they work.
However, words are one thing; sticks and stones are quite another. They know that next week at the G20 meeting east of the City in Docklands they could be a target for violent anger and demonstrations like never before.
Their plight is worsened by the feeling that the rage has been stoked by politicians, that the view on high, even if it is not expressed as such, is that they deserve everything they're getting. For months now, they've had to endure brickbats at Westminster and in the media. They've been dragged before MPs and made to squirm - conveniently diverting attention from others who also brought the economy down, namely those same ministers who have been pointing accusing fingers at them.
Much of the opprobrium is entirely deserved. Many bankers behaved appallingly - their greed and irresponsibilty threatened the entire financial system. And their subsequent hubris only served to add to the disconnect between them and the rest of society.
The misery they have inflicted is incalculable. That they should be humiliated and made to apologise is only right and proper. In some cases, that penance should extend to financial retribution - they ought to repay the vast bonuses they received and their pension payouts should be reduced.
There is a growing mood, however, of that not being enough. The politics of envy have well and truly taken over. On the Left, there is elation at what is being seen as little short of the death of capitalism. The Right, too, anxious not to miss out on a popular sack-the-City bandwagon, is also pressing hard.
When the chairman of the Financial Services Authority, Lord Turner, last week published his review into the regulatory framework requested by the Government, there was widespread disappointment. His report was comprehensive and entirely coherent. But because he stopped short of proposing levels of salary caps or an outright ban on bonuses, the groans of frustration were audible.
Government ministers and other vocal opponents really ought to know better. They're attacking without an end in sight; they're discovering it isn't that simple; and all the time they are fanning the flames.
We had the unthinking reaction of the Labour deputy leader, Harriet Harman, to the row about Goodwin's pension. Her substitution of a new form of judiciary for the law of the land - "It might be enforceable in a court of law but it's not enforceable in the court of public opinion and that's where the Government steps in" - was as shocking as it was banal.
Since then, we've heard repeatedly from ministers wanting to take action on excessive remuneration in the financial sector. In truth, such broad-sweeping assertions are little better than Harman's crass outburst.
The knee-jerk calls take no account, for instance, of one positive result of bankers earning as much they do: eye-watering City pay packets represent a 40 per cent return for the Government. Every time you see a massive City wedge, just remember to divide by 10 and multiply by four: unless the recipient is a tax dodger (and very few are in the modern City - their employers simply will not allow it) that is the sum destined for the Treasury.
Ministers, somewhat shamefacedly, are now beginning to realise this. Alistair Darling will today warn that anti-banking rage now threatens the industry's recovery. He has already admitted to MPs on the Treasury Select Committee that his view on cracking down on bankers' pay was "double-edged". I'll say.
In all, 12 per cent of income tax is derived from the financial sector. Clobber those salaries and bonuses and he can kiss goodbye to a large chunk of the already holed public revenue.
He will lose even more if bankers see what he is doing and simply take their wares overseas. We should be under no illusion as to the ease with which firms, in an age of improved transport links and millisecond technology, can conduct their business elsewhere.
Everything associated with the discredited financiers and their trade is regarded as fair game. So tax havens are declared another target for vengeful leaders. They are expected to feature highly on the agenda of the G20. Close them down, says Gordon Brown, calling for a global crusade. Not once does he explain how that will work when one of the biggest tax havens in the world is the UK itself. Jersey, the Isle of Man and those places that help individuals and companies evade tax and offer secrecy should be brought to heel. But before the Government jumps into action there needs to be some clarity as to how they are going to treat the UK.
We've been down that road before, let us not forget, with the furore about non-domiciles, which left the Government with egg all over its face: ministers succeeded only in convincing non-doms they weren't wanted here. While some of them left, companies, too, took heed and also began relocating. Just like that.
What the City's opponents are discovering, when they begin to peel back the layers, is that little to do with the City is as straightforward as it appears. I'm not saying we should do nothing - something has to give. We need a newly enhanced regulatory system and the rules must be tightened. But before critics open their mouths, they should think.
If we want London to remain the globe's leading financial centre - and it seems to be widely accepted that we do - then we must retain the confidence of the financial community. It's to be hoped that Goodwin's house and car are the end and not the beginning. Next week's G20 and the planned protests will provide a stern test. Politicians of all sides have to act responsibly - however much it may irk them.
Reader views (16)
A small point, but might point to which angle Chris is coming at this whole story from - "eye-watering City pay packets represent a 40 per cent return for the Government. Every time you see a massive City wedge, just remember to divide by 10 and multiply by four".
This is simply incorrect.
People only pay 40% tax on any earnings above £37,400 ie. any earnings well-exceeding the average wage. Everything they earn beow that amount, they pay the same tax on as everybody else. And 12% of tax might well be derived from the financial sector, but that is equally meaningless as a not-insignificant 88% must come from the rest of the economy?!
We don't owe the financial sector anything and they should not be treated as a special case.
- A Cole, Manchester, UK, 27/03/2009 23:36
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Pablo, I'm afraid banking has made very valuable contributions to society. Let's list a few things: (1) Store of money - banks are still safe for your hard earned cash, instead of keeping it under the mattress where some scrote will come and nick it. (2) Giving opportunities to poor people with motivation or ideas -Without an efficient way of financing the working classes' ambitions, Britain's class system would be much less mobile than it is today. (2) Housing for people who couldn't afford a house - Banks thought they were doing a good thing by letting poor people buy houses on low interest rates. And so many did that prices went bananas. It was shortsighted, but hardly criminal. George Bush went on record in 2004 in the US saying how pleased he was that the pressure he put on banks to lend money to first time house buyers was working.
If there were no imbalances then there would be no ambition. But life isn't that black and white. It went to far, the imbalances were too great. But there are many street kids in India who run around happy, but would love to have the relative comfort of people on the poverty line here.
- Chris, London, 27/03/2009 18:06
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Of course we do not need bankers, especially if we change the way we live our lives. Chris Blackhurst thinks we all want to live in a capitalist society, we don't. unfortunately we have to at present, but this could change.
- Kerry Trubee, Purley, 27/03/2009 17:10
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James, surely the lending institutions are wholly to blame for the credit crisis. There was a huge demand for property in the UK especially over the last decade. Many reasons for that but essentially a growing population, a growing number of children reaching the leaving home age, getting married etc. increased immigration and so on. People needed homes. That increased demand fuelled the escalating prices of property. High property prices meant higher loans. That snowballed to the ludicrous property values we witnessed. The imprudent lending policies of the lending institutions e.g. frequently 125% of the property value fuelled property inflation further. If money hadn't been thrown at borrowers, they wouldn't buy so readily and property values would reduce or stabilize and loans would then have been manageable. The banks are responsible for the lunatic property values which crucified many borrowers; responsible for reckless investment dealings with our money not their's, e.g. those instruments whose name escapes me, which nobody understood; buying debts from other creditors and all manner of weird and wonderful ideas all in the name of profit and easy money i.e. greed gone barmy.
- Martin Ward, London, UK, 27/03/2009 16:44
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Chris,of course you are right to remind us of the financial sector's contribution to the Exchequer.This,however, only serves to highlight the imbalances in the UK economy.It has been convenient for all parties in government to rest on the contributions of 'The City' while allowing a hollowing out of other industries in the UK. The City has never created anything let alone anything of value.It is,and always has been,a mechanism for redistributing wealth that has already been created or earned in other places ie.our savings.
Whether bankers are worth their renumeration is a matter of opinion with their employers being the ultimate arbiters.The mantra 'we have to pay the money to attract the talent' has been exposed just like the Emperor's new clothes.Does a banker require more intellect than a doctor or an engineer,maybe.Perhaps this will be remembered.I can think of no other industry that shares 'profits' in the way investment banks have done.My guess is that the bankers will keep their heads down and dodge the obloquy until the cycle turns and things revert to normal - whatever normal is these days.
- Pablo, Tonbridge., 27/03/2009 16:20
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Not sure what Planet you live on or come from but not Earth...we don't need those Bankers considering half of them couldn't count how many fingers they got...lets go back some 60/70 years or so? how many banks were there?..as soon as some of these guys realized there was money to be made and getting rich at the back of the so called WORKING CLASS, hey presto banks everywhere. Na you like the Labour politicians wouldn't know how some people live..being driven here and there...2nd homes...free lunches...duty FREE's...and we're paying for it..no wonder we're in a mess...the sooner we got rid of some of these bankers they better...Goodbye you're the weakest link...A.Griebler
- A Griebler, Southsea Hampshire, 27/03/2009 15:30
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Chris you have got it wrong. Most bankers had absolutely nothing to do with the credit crisis. Very small groups within the system, notably derivatives packagers and traders were responsible for this mess. The other side of the coin is the reckless borrowing by the public taking out credit cards and loans that they knew damn well they could not afford. The loans are not the problem on their own, its the failure to repay them that is the problem. If everyone was paying their loans and credit cards then there would be no credit crisis would there? Banks made the loans of course but they are not the only ones to blame for this mess by a long shot.
- James Macleod Ritchie, Oyster Bay Cove, 27/03/2009 14:18
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'Financial Community' is not exactly welcomed anywhere at the moment so we need not be too afraid to regulate it more heavily and set conditions on amounts and when any bonuses can be paid. The 'bright sparks' are not exactly in great demand anywhere. If we don't do anything significant now that we have an excellent reason to, we will have a similar situation in a few years time again. It cannot be correct that a minority of people are paid extreme (to most of us) amounts of money for creating nothing of value. Yes, nothing of value as this is exactly what was happening- more and more fancy financial instruments and other gimmicks were being designed and created over the years just to create more 'profit' so that further and bigger bonuses and packages could be paid. Unfortunately this 'profit' was not based on any real wealth or actual value; nothing of tangible value was ever being created- simply amounts were being turned around and around, every time repackaged as something else. And one thing that you cannot deny the 'financial community' is a lot of imagination. It seams that in recent years lending for purposes of creating tangible wealth (like to companies) became only incidental to the much more 'profitable' and bonus creating activity of playing with money. If you are allowed to do it year on year without anything impeding you or bringing you to account (and human greed has no limits)- well,look at the results now. There is no better time than now to change it.
- Jolanta, London UK, 27/03/2009 13:55
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Somebody suggested nationalizing the banks. That attracted accusations of 'nutter' and similar accusations. Kenneth Clarke suggested that was not possible because it was totally contradictory to our tradition and philosophy. Isn't it about time we changed our philosophy. The Government owns great chunks of the banks now so why doesn't it step in and control them totally on our behalf? Privatization of transport, power etc. can be argued for but privatization of the banks and the financial systems and infrastructure on which our very existence depends is clearly unsatisfactory.
- Martin Ward, London, UK, 27/03/2009 13:22
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Nice comment, Geoff. Any sensible alternative to what we have now would be welcome. Oh, and ignore the crass remark from Andrew, London: he is more interested in cheapo point-scoring with his childish and hackneyed comments.
- Annabelle, london, 27/03/2009 13:22
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That was a very good and balanced article. But a few points:
1. With national Insurance, I think the tax rate is more like 50%.
2. We aren't just a little bit dependent on banks. If all the bankers decided not to come into work, 99.9% of us would be hungry surprisingly fast. But the same is true of many utilities that we rely on every day in ways that we do not always appreciate. We need banks or something like them.
3. In the US, when banks were not allowed to have other parts to their business, there were many more bankruptcies than in other parts of the world. But recently the banks went over the top with their risk taking, and already that has been redressed radically, and the strategic people involved have lost their jobs and (some) money. Abhorrent as he may be, Fred's pension is much less than his salary was.
4. Would you ban bananas if you slipped on a banana skin? Stuff happens and I know that people want to express their anger. But I have a sad premonition that the protests next week will make things worse, not better.
- Chris, London, 27/03/2009 13:00
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Geoff, good point but when you leave school and have to venture into the real world, perhaps your view on life with responsibilities will change.
- Andrew, London, 27/03/2009 12:24
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You clearly haven't grasped the situation. The reason we're angry about bonuses paid to bailed out bankers is that they were paid for with public money. IF they don't have clever accountants, yes they might pay 40% of it BACK to the government, but that's no huge consolation.
- Jh, London, UK, 27/03/2009 12:15
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40% tax possibly, for some, the paye-serfs,middle guys,are you so sure about the 'Masters of the Universe'. Remember the 'carry' the 10% effective rate, paying less than the cleaner.
Think legal avoidance etc. If we had minimum 'effective rates' before legal avoidance, this might be true.
We need banks but hardly more supercasinos which ironically the government wasnt in favour of allowing to trade!
Readup and make your own mind up if you wish on this thought provoking blog.
http://www.taxresearch.org.uk/Blog/2009/03/26/they-just-dont-get-it/
- Sm, London, 27/03/2009 12:14
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Yes we can do without the banks. They have become unfit for purpose and their business models have failed. They are bloated and over-manned like manufacturing in the seventies. We must let them go. The law of supply and demand will kick in and new businesses will fill the void. Maybe something like European credit unions helping small firms, or traditional building societies helping people with homes.
- Geoff, London, 27/03/2009 11:45
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Full marks Mr Blackhurst. A balanced piece of journalism from the Evening Standard, perhaps more often seen in the more esteemed financial press. Your piece pretty much identifies all the practical aspects of the problems the country is facing, rather than jumping on an emotional bandwagon of half baked ideas and reactions (many of them unfortunately are peddled by senior Govt figures which merely underlines how far politicians are out of their depth when dealing with the real world)
- Dc, London, 27/03/2009 11:21
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