There comes a time in the affairs of men, as Roosevelt said, when the people decide that enough is enough. When the national mood hardens from indignation to resolve, and politicians are forced finally to act. It happened when the House of Lords, a bastion of unelected privilege, tried to destroy Lloyd George’s welfare budgets before the First World War – that led to a curb on the legislative power of the Upper House.
Arguably it happened again during the Winter of Discontent, thirty years ago, when the public finally decided that the trades union barons had simply got out of control. That led to Margaret Thatcher, the industrial relations acts and the destruction of the trades union movement. And I believe it is happening again with British bankers following last week’s disastrous attempt by the Royal Bank of Scotland to hold the country to ransom
A bit over the top that? Bankers don’t do ransom, do they? They’re decent chaps who went to good schools and give to charity. They wouldn’t hold a gun to the head of the government and demand £1.5 billion pounds with menaces, like Alan Rickman in Die Hard. Actually, they would and that is exactly what they did last week. The board of Royal Bank of Scotland said, in effect, give us the money or we will wreck this bank, bring down the government and endanger the financial system. The RBS is one of the biggest banks in the world, with a balance sheet of over £2trillion – more than the GDP of the entire UK.. If the board had resigned the City of London would’ve been plunged into chaos: bank stocks would’ve crashed and other banks would likely have withdrawn their funds, risking another Lehmans.
The Royal banksters were behaving far worse than any trades unionists in the 1970, using their economic leverage to demand excessive reward, holding the country to ransom, threatening the livelihoods of millions. The difference is that no trades unionist never went on strike for a million pound pay claim. And when they went to number ten, they only expected beer and sandwiches – not a banking rescue that has so far amounted to £850,000,000,000 of taxpayers money, according to the Audit Commission.
Now regular readers of this column will know that I don’t hold bankers in particularly high regard. Banking is relatively simple way of making money. When you borrow money from the Bank of England at base lending rate of 0,5% and then lend it out to mortgages at 5% and to small businesses at 10.5%, it doesn’t take a genius to work out how they make their money in RBS. There is nothing in retai banking that couldn’t be done by a competent civil servant earning £60,000 a year.
Not, I grant you, investment banking which is an altogether more demanding activity, involving big risks on complex financial instruments. But surely we have learned by now that high street banks should not be engaging in casino banking because it puts at risk the savings of millions of people. Speculation with other peoples’ money is not only immoral, it is highly dangerous to the fiancial system as a whole. Investment banking should be a wholly private activity – like hedge funds and private equity – conducted by savvy investors who get high rewards when they win, but don’t come running to the government when they lose.
Forget the nonsense about “fiduciary duty” and the risk of RBS losing its best bankers. There’s no fiduciary duty to pay excessive salaries in a nationalised industry, and if the speculators want to leave, let them. There are traders in Royal Bank of Scotland earning £20 million a year, and they don’t behave like Captain Mainwairing in Dad’s Army. These were the over-paid spivs who caused the crash. A culture of avaricious self-destructive short termism is alive and well in the City and living off our tax receipts. Which is exactly what this column forecast would happen after the banking rescue last year when, instead of restructuring the banking sector, the government allowed giant behemoth banks, unreformed and unrepentant, to gain access to almost unlimited amounts of public money. They know they are too big to fail, so they are throwing their weight about.
This isn’t just an issue for the City of London. We learned last week that over eight hundred public sector employees are earning more than the prime minister. Nowadays, it is possible to earn more than a million a year as a public servant. Pen pushing bureaucrats in dowdy council offices, many of them virtually unemployable, are now strutting around like Fred Goodwin shooting their cuffs and demanding bonuses to give them an ‘incentive’. Countless hospital administrators are parking their BMWs and gabbling clichés from The Apprentice. Finance culture has damaged he fabric of the economy by turning us into a nation of bonus hunters, while, British manufacturing has shrunk to only 11% of GDP.
Thanks to our overdependence on financial services, Britain is last out of recession and so heavily overdrawn that there’s a real danger that the world is about to foreclose on Great Britain PLC. We are on course for a deficit of 13% of GDP – the highest in the G8 and unsustainable. The public sector is going to have to be cut. People are going to lose their jobs. Services will disappear. No government can curb public sector pay and demand these kind of sacrifices while allowing state owned bankers to pay themselves billions in bonuses. Every one of those RBS board members would have been out of a job if the Bank of You and Me hadn’t come along with unlimited overdraft facilities.
Well no more. The British public will not stand for it. Across the entire United Kingdom on Thursday, motorists were pulling into lay-bys and furiously texting to the nearest radio station their disgust at what they had been hearing from RBS. BBC drive time presenters struggled to cope with the magnitude of public anger. The government must now listen to the people, block the bonuses, and drag bankers into the real world. And if the RBS board threaten to resign, the Chancellor should say, in the words of Oliver Cromwell: ‘Depart, I say, and let us have done with you. In the name of God, go!’