Michael Moore: Punishing the banks too severely will hurt us all

Barclays Bank ran the bonus gauntlet last week, announcing rich rewards for top executives. In the wake of the financial crisis, there is little public appetite for handing out big bonuses to bankers.

Today it was the turn of RBS to announce its results and bonuses and tomorrow, it will be Lloyds.

There is real public anger over the pay and bonuses of some top bankers. This is understandable but it does crowd out some other important points. We need to remember that life for most bank staff is not a world of huge pay and big bonuses.

Government also needs to be careful that while we deal with banking excess we don't punish the future prospects of the banks.

RBS and Lloyds employ thousands of workers across Edinburgh. Very few of these bank workers will ever receive a huge bonus. The mind-blowing salaries and mega bonuses might pile up high but they are not shared widely. In Scotland, nearly one in ten jobs is in the financial services sector.

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RBS employs around 15,000 people in Scotland, 8000 of them in Edinburgh. Lloyds has 10,000 staff in the Capital. But most of these people receive either a very modest bonus or none whatsoever. They are not rich. They are the IT workers, local managers, and branch cashiers that we all rely on, who work hard for themselves and their families and who struggle to manage household budgets in a tough economy. We need them and they need security. Indeed, bank workers at offices such as the Gyle and Gogarburn have probably had more cause than anyone to be angry at bank executives over the past couple of years.

This government's anger has been accompanied by real action. We have placed limits on banks' largesse. The coalition has taken clear and decisive action to rein in excessive bonuses.

The most stringent code of practice for remuneration and bonuses of any financial centre in the world was introduced at the start of this year. This includes a strict limit on the amount of bonus payable upfront in cash and the requirement that 50 per cent of bonuses are paid in shares which bank employees will not be allowed to sell on for an appropriate period - long enough to ensure that the bonus value is tied to the bank's performance.

For the public, rising share value in banks partly and sometimes mainly owned by them, those rising share values are a good thing. But this month, the Government went further still. We announced an increase to the banks' levy. This will now raise 2.5bn from the banks each year. It means that in each year of this parliament we will raise more in bank taxes than the previous government raised in any single year. We have also reached an agreement with five major banks to cap their total bonus payments for 2010 to below the 2009 level. They have also agreed to improve transparency and increase lending, especially to the small and medium-sized businesses that need it.

The actions the Government has taken are fair but responsible. There are those who say we should go much further and impose crippling new charges and limitations on the banking sector. I understand where that feeling comes from but to do so would inflict damage that would be felt much more widely than the top bankers. It would destroy jobs in the sector, and inflict pain on the families and businesses that rely on them. As Scotland emerges from recession this government is determined to rebalance the economy, boost industry and create the conditions in which new jobs in green technology and other sectors flourish.

But the financial services industry should continue to play a strong role in the Scottish economy. In 2009, after the UK's banks had taken a battering, RBS estimates that it still injected 570 million into the Scottish economy in wages and pensions alone, with 50,000 Scottish households dependent on that bank for their income or pension. In 2009, Lloyds spent 500m with Scottish suppliers. Edinburgh's financial sector is still the ninth largest in Europe, and financial services output is growing again.

We are right to take the tough action that we have, but we would be wrong to punish the sector with job-destroying restrictions. Banking and finance are highly mobile. If government hits them too hard, they will leave. If banks shrink, the myriad of back office functions that make the modern bank tick will disappear.

I have met regularly with senior Scottish bankers. They know that this government expects accountability, transparency and restraint from them. But the government understands that they need the room to recover and revitalise: to play their part in economic recovery and job creation.

Both sides are committed, and we will work together in the interests of the economy and the country.

Michael Moore is the Secretary of State for Scotland.