Bankers’ Bonuses and the Banking Industry — House of Commons, 2015-02-25
Topic: Domestic Commerce
David Mowat (Conservative, Centre-right): I thank my hon. Friend the Member for Dover (Charlie Elphicke) for curtailing his remarks so well. I wish to make two points at the end of this debate. First, the thrust of the motion is to replace a levy on the balance sheet, which is not avoidable or evadable, with a tax on bonuses, which is both those things. It is a bizarre policy. The Opposition seem to have mixed up the real issue, which is the overly high level of remuneration in banks, with the fact that it is split between variable and fixed pay. They appear to think that it is fine to pay someone £3 million a year, but that they should not be paid £2 million with a £1 million bonus, and that the extra bit needs to be taxed much more. That is just wrong. Apart from anything else, that £1 million can be clawed back under our current proposals, and indeed even under the Opposition’s proposals The real issue to consider is: what is so unique about the structure of the banking industry that means that banks have to pay so many of their employees so much? The same does not happen in the oil or the pharmaceuticals industries—those companies are worth more than big banks. Earlier, I cited the example of Barclays, which feels the need to pay 1,000 people more than £1 million a year. I am sure that those people work extremely hard, but people in Shell, BP, Glaxo and AstraZeneca work hard, too, and those companies are also world class and world-beating organisations, but they do not have that salary structure. The only explanation is that the market is not working, which is something that both sides of the House should consider when drawing up banking reforms. There is something in the way that investment banks work that stops new entrants coming into the market. I have reflected on this and feel that that is almost certainly the case If the chief executive officer of a company is hiring an investment bank, they would not get fired for hiring Goldman Sachs—in the same way that someone in IT would not get fired for hiring IBM. Typically, a CEO will last for only two years in a new company—they do not last long and they do not get many chances. If Goldman Sachs comes along with a big transaction, it bases the price of that transaction not on how much effort it takes to do it but on the 1% increased value in the company. Well, if I am the CEO of Apple and I increase by 1% the value of Apple, which is worth £500 billion a year, and Goldman Sachs gets a slight percentage of that, there is an awful lot of money swilling around. That makes it very hard for new entrants to enter that market We all have to address the matter of why it is so hard to get challenger banks into that market, because that is where the abuses occur. The problems do not often occur in the retail sector. We should also address the matter of why it is that so many people need to earn so much, when the shareholders in those organisations do not earn much Secondly, I want to reflect on what has happened in HSBC over the last little while. HSBC has been running a management structure that is based on plausible deniability. In Mexico, it has been trading with drug cartels, and it has been involved in evasion in Switzerland and it is saying, "We just did not know that our guys were doing that." The question is: if its management structure is based on plausible deniability, what is the point of the board and the chief executive? We should think about that, because it provides a better argument for splitting up banks than this dichotomy between retail and investment, because it is, prima facie, a bank that is too big to manage. Here is the truth of it. The guy who was running the operation in Mexico was told, "This is your target. We don’t really care what you have to do to make it. If you can’t make it, the next guy will." That is how these banks operate. That is the structure of plausible deniability. That is why we need the cultural change that Ministers on the Front Bench are trying to achieve.