Archive | February, 2009

The perks of bonuses (16 February 2009)

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The perks of bonuses (16 February 2009)

Posted on 16 February 2009 by admin

Attacking bonuses earned by bankers is counterproductive: they need and deserve incentives to save the UK economy

Bonuses are supposed to be paid on the basis of the performance of the company (or in this instance, bank) and the employee in the previous year. This simple fact seems to escape the attention of a lot of people who talk about City pay. I know a little bit about it because, to coin a phrase, some of my best friends are bankers; take this declaration of interest into account by all means, but do not dismiss the argument for that reason.

Bonuses are convenient for employers because they do not create open-ended commitments or affect other payments such as, for instance, redundancy. Banks employ many people who are neither tellers at branches nor the executives who made all the errors, but whose trading and sales expertise can make a large difference to the fortunes of the institution. For most of these people, bonuses were neither windfalls nor tips, but actually served their purpose as incentives to work hard. Any fool can make money in a rising market, but it takes skill and commitment to make money when the going gets tough, and over-performing in a bad market is probably one of the most bonus-worthy achievements there is.

The semi-nationalised Lloyds Banking Group, created in January 2009 from Lloyds TSB and Halifax Bank of Scotland (HBOS) is in a particularly strange position. Shortly after the merger was announced, samizdat images started circulating around the City. Howard, star of Halifax’s television commercials, was depicted doing something unmentionable to the black horse of Lloyds. Lloyds is the one institution that did not fail itself but been dragged down by helping the whole sector, and the government, out of a tight spot by taking over HBOS, Lloyds TSB generated about £1.3bn in profits in 2008, compared to losses of £8.4bn at HBOS.

David Cameron declares that Lloyds staff should be restricted to a figure, £2,000 (which, after 41% ends up with the exchequer, amounts to £1,180), which he has plucked from the air. Cameron can probably afford to tip the waiter £2,000 after dinner, thanks to his inherited family wealth, estimated by the Sunday Times Rich List at over £30m. It seems perverse that regardless of individual performance, City workers should have their pay dictated by a preposterous political auction about who can be harshest to the wicked bankers. Meanwhile, taxation of inherited wealth appears to be on the way out.

I would not mind so much if this were a shift from market capitalism to egalitarian socialism – but this is more like a regression to feudalism. Politicians of all parties boasted for years until 2008 about the financial sector, and often led the calls for further deregulation, and now cover their own errors by lambasting the banks. Things went too far with excessive and guaranteed bonuses, but the tone of public discussion about the City has now become indiscriminate and nasty. If and when the bits are put back together we shall still need the City and its employees to put their skills to generating, rather than dissipating, earnings for Britain.

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Labour has designs on the City (7 February 2009)

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Labour has designs on the City (7 February 2009)

Posted on 07 February 2009 by admin

The 2009 City of London elections will, for the first time, be contested on a party basis. Does Labour stand a chance?

Labour launched its 2009 local government election campaign on 4 February. This was not a ridiculously early start for the county council elections in June – the elections for the common council of the City of London are in March. The date is not the only weird aspect to the City elections. It is a unique local authority, in that its 9,000 or so residents share the right to vote with businesses. Labour expanded the franchise in 2002 so that a certain number of City workers, as well as business owners, have the vote. The City has 25 wards, with old-fashioned names like Cordwainer and Candlewick, electing 100 members of the common council. Most of the resident population is concentrated in three wards, with the other 22 having mostly business voters.

City government is probably best described as a benevolent dictatorship. The City of London Corporation (CLC) is, despite its medieval pageantry and layers of tradition, a modern and efficient local authority which runs high quality local services and deals well with its extraordinary task of catering for about 300,000 workers who flood in and out every weekday as well as its small resident population. It also has several legacy roles such as landlord of social housing well outside its borders, and custodian of Hampstead Heath and Epping Forest, which are also by and large carried out with unobtrusive efficiency.

The CLC is at the centre of a quiet, discreet network of power and influence. It is taken very seriously nationally and internationally when it speaks on behalf of the financial sector – it was a crucial voice for the long-delayed Crossrail project, for instance. Despite the current woes of the financial sector, it still looms large in the calculations of the future of London and the British economy. However, a lot of the elected element of City government is opaque rather than transparent; some members of common council have but the most tenuous connection with the present life of the City, and old boy networks and Buggins’s turn play more of a part in City government than in most provincial backwaters. Despite having more “elected” representatives than anyone else in Britain, the inhabitants of the City face something of a democratic deficit.

The 2009 elections will be the first time that any City elections have been contested on a party basis. Up until now, candidates have stood as independents and very often, particularly in the business wards, there have not been contested elections at all. Labour’s six candidates are therefore making a little bit of history. Six people are obviously not enough to win control, but City of London Labour have produced a manifesto outlining their priorities, which are about enforcing the London living wage on City contractors, more environmentally friendly policies (the most visible outward sign of how much needs to be done being the lights blazing all night in City office towers), and more transparent governance. Having a manifesto is itself something of a new development in the politics of the City. The aim is influence, rather than power.

Do the City Labour candidates stand a chance? One might think that the City population consists entirely of wealthy bankers in their weekday pieds-a-terre, but as well as luxury flats there are some more ordinary flats and even a couple of pleasant local authority estates such as Golden Lane just north of the Barbican. In the 2008 mayoral elections, Ken Livingstone polled a creditable 32% of the City vote, to 48% for Boris Johnson, so there is clearly potential for a Labour vote in the residential wards. The business vote is more of an unknown quantity, and campaigning for votes among the nominated business franchise holders will be a new experience for political campaigners. But this will be one election campaign, at least, in which vituperative rhetoric against the sins of City fat cats is unlikely to play well.

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