It time to question why those who make money out of money are considered a cut above other workers, writes Alf Young
Make work pay. That’s a constant refrain from politicians, whether addressing the cost of living crisis or attacking welfare dependency. But whose work? And whose pay? In the past few days we’ve seen plenty of party political manoeuvring at both ends of the earnings spectrum over the minimum wage and what to do about the way its spending power has shrunk in recent years. And over how to curtail bankers’ bonuses. Big banks, even those still in state ownership, seem to believe bonuses that can triple basic pay for elite investment bankers remain critical to their overall commercial success, despite the near-meltdown banking’s own excesses wrought on the global financial system and the wider world economy in 2008-9.
However, if you’re looking for a compelling exposition from either politicians or employers on what’s to be done about the increasingly disparate patterns of rewards for work in our society, the message seems to be: Forget it.
In his New Year message CBI director-general John Cridland struck a surprisingly enlightened note. “There are still far too many people stuck in minimum wage jobs without routes to progression – and that’s a serious challenge that businesses and the government must address,” he said.
Barely two weeks later, when George Osborne put heavy public pressure on the independent Low Pay Commission to sanction an inflation-busting rise this year on the current floor of £6.31 an hour for workers over 21, where was this voice of employers?
The chancellor had even trailed the carrot of £7, taking the minimum wage back to where it would have been had it kept up with prices in recent years. Mr Cridland was having none of it. “An unaffordable rise would end up costing jobs and hit smaller businesses in particular,” he declared. “Any increase in wages must reflect improved productivity.”
The voice of the CBI takes a more consistent line on what to do about the banks. A consistency that hovers around doing nothing at all. Way back in 2011 he was describing any plans for further banking reform as “barking mad”. This week, when Labour raised the prospect of the UK coalition capping bonuses at RBS, the bank it still owns to the tune of 81 per cent, Mr Cridland threw his weight firmly behind RBS.
Pay should be set in boardrooms, not Westminster, he insisted. “The judgment on bonuses for RBS must be whether the leadership team can continue to motivate and attract the specialist talent required for the bank to do its job effectively as a lender to the economy,” he told the BBC.
The lowest paid, in Cridland’s view, can only expect to be paid more when they produce more. But elite bankers, who are now paid more in one year than a worker on average earnings can expect to receive in a whole working lifetime, should, it seems, get whatever their boardroom peers decree.
And what of bankers’ own contribution to national productivity in recent years? Weren’t their antics directly responsible for the credit crunch and the recession which followed? The one that blew a hole in our economy so deep we are still crawling back up towards the rim of the crater we were all plunged into. Where, the millions struggling to get by in tough times on £6.31 an hour might well ask, is the clinching productivity improvement in that saga that justifies such stellar rewards for them now?
There isn’t one of course. All there is – as John Cridland hinted in his BBC comment – is a belief that making money from money, like sticking the ball in the net in Champions League football, is a skill so rarefied it somehow deserves personal rewards free of all restraint. Other than what competing banks or clubs are prepared to pay for that same individual’s services. That’s no constraint. Arguably that’s a one-way escalator to an increasingly unsustainable future. A breeding ground for challenging other constraints too, resulting in the kind of market abuses we have seen in our banks in recent years. From product mis-selling, through rigging markets like Libor, to the ongoing allegations that some banks deliberately set out to asset strip some of their business customers by foreclosing on outstanding loans.
George Osborne’s attempt to bounce the Low Pay Commission into a bigger rise in the minimum wage isn’t a principled stand on how badly rewards for work are now skewed so dramatically away from the lowest-paid workers. It is electoral politics, pure and simple. An attempt to shoot the fox Labour set running, to some effect, when Ed Miliband launched his cost of living campaign.
The political jousting over what to do about bankers’ bonuses is more complex. But electoral calculation still plays a highly significant role there too. The chancellor wants to sell another tranche of Lloyds shares, including a public offering like that of Royal Mail, before this year is out.
Selling any of the government’s dominant holding in RBS is almost certainly out of the question this side of the next UK general election in 2015. But, as the summary despatch of Stephen Hester demonstrated, making tangible progress on rehabilitating RBS as a bank is seen, in coalition circles, as important in buttressing its reputation as the government that got the deficit down.
Ministers will be anxious not to do anything, even on bankers’ pay, that might compromise these electoral objectives. So, on Wednesday, the prime minister pointedly refused to join the Labour leader in rejecting, in advance, any approach from RBS to its dominant shareholder – the UK government – to allow future bonuses of up to 200 per cent of base salary. Indeed George Osborne is challenging that EU-inspired bonus cap in the European Court of Justice.
Mr Miliband has now upped the ante by laying out plans, if Labour comes into office next years, to restrict the market share of the big four banks. There is plenty of precedent for restricting dominant market shares, both in UK competition policy in recent decades and in current practice in other jurisdictions.
But there’s a real danger that, in widening this debate into who’s got the greater appetite for banking reform, the pay issue gets lost somewhere in the political undergrowth. There’s no doubt the Labour leader is on to something with his cost of living campaign. There’s no doubting public cynicism about bankers and their reckless, but richly upholstered ways. Ditto the big energy suppliers.
The simple reality is that all our main parties – even the current nationalist government at Holyrood – are fully signed up to running market economies.
Against that reality who among them is really going to challenge the current market orthodoxy that, while work continues to pay, what it pays at the top and what it pays at the bottom will, without some more effective means of restraint, continue to move further and further apart?