Craig Barrett and Nik Darlington 10.42am
Given some of the recent hysteria about bankers’ bonuses, Mr Fred Goodwin and Labour’s leap on to the let’s-hate-the-wealthy bandwagon, people might be forgiven for thinking that this Government was guilty of misunderstanding of that famous misquotation of Calvin Coolidge: “the business of America is business.”
I do my best to avoid burdening readers with statistics but I should like to echo the wise words of Fraser Nelson, who pointed out over the weekend that the so-labelled “1%” earn 13 per cent of wages but pay 28 per cent of all income tax.
In the light of the Labour party’s apparent belief that it is fine for those of us who work and pay taxes to subsidise those who do not work to the tune of an equivalent of £35,000 per annum, it is easy to understand why the middle might be feeling a little bit squeezed.
The middle has neither the luxury of a substantial guaranteed income for being idle nor do they have the stratospheric income that some people would have us believe is commonplace in financial services.
The outrage at bonuses at RBS betrays a fundamental misunderstanding of the nature of the Government’s involvement in the bank.
RBS was effectively nationalised by the last Labour government in order to bolster the bank’s balance sheet. However, unlike the nationalisations of Rolls-Royce in 1971, British Leyland in 1975 and (to a certain extent) Railtrack in 2002, RBS remains a public company listed on the stock exchange.
It represents an investment for the British taxpayer, not an exercise in the Government in-sourcing financial services, as some seem to believe. The hope is that sensible management and some vision will steer RBS back to prosperity, at which point the Government can sell its stake and perhaps make us all a profit.
Referring to RBS constantly as being “taxpayer owned” gives it something of the status of a Government department, which is to confuse entirely what the RBS rescue was all about.
Everyone would be rather shocked to see Arsenal being sponsored by the Department for Energy, for example - naturally, because it has no commercial role to play and no need to attract business. RBS, on the other hand, will only recover if it remains competitive and is able to attract business, hence its continued presence as a sponsor of sporting events and other marketing activities.
In the same way, it will only be able to recover if it is permitted to run its internal management like any other commercial organisation.
Stephen Hester is not a civil servant subject to a pro-forma contract of employment, sanctioned by countless HR executives and trade union representatives. He is a successful businessman hired on a negotiated contract to work his socks off turning around a failed financial institution. Mr Hester’s contract was negotiated on the basis of normal industry practices. Like it or not, those industry practices include performance-related bonuses and, like it or not Edward Miliband, it was your party (and a Cabinet of which you were a member) who signed off on the deal.
What is more, the Labour party has since leapt on the bonus payments to executives at Network Rail. Its chief executive, Sir David Higgins, was set to receive a bonus of £336,000. Another five senior colleagues would have received up to 60 per cent of their standard pay in bonuses.
But Labour is the political party which, when in Government, was quite relaxed about Network Rail paying its board of directors bonuses of £437,000 in 2004, £871,000 in 2005, £1.1 million in 2006, £648,000 in 2007 (lower as awards were partially deferred because of investigations into the Grayrigg derailment), £1.5 million in 2008 (normal services resumed) and £1.2 million in 2009.
In those six years, Labour ministers did not bat an eyelid at Network Rail paying its directors approximately £5.75 million in bonuses and incentive schemes on top of their already sizeable salaries.*
The attitude of the Labour party - whether directed against Mr Hester, Mr Goodwin (the man knighted by Gordon Brown) or others - does nothing for this country’s credentials as a serious player in the world economy.
The politicians responsible for deregulation and setting up plans for growth remain obsessed with executive pay - something Nick Boles highlighted in his recent Macmillan Lecture.
And worst of all, the cowardly behaviour of the Government over the Stephen Hester bonus furore sends out a signal to the rest of the world that success is no longer appreciated in Britain. In particular, the notion that employees should somehow have the right to sit on remuneration committees misunderstands completely the entrepreneurial spirit that made this nation great.
The correct Coolidge quotation is: “the chief business of the American people is business.” This is correctly linked to the people. It applies equally to ‘UK plc’ because our country will only grow if we can go back to being a business-friendly environment, where companies like RBS are able to get on with things without the need to satisfy baying blood-lust through embarrassment, shame and meek hand-wringing.
Success benefits us all - a rising tide lifts all boats - and a strong financial sector will stimulate growth.
Bruce Anderson, channeling the past once again, yesterday resurrected the phrase “brain drain”, recalling a time when Labour’s perverse taxation drove so many smart and industrious people out of this country.
Stop and think. With 1 per cent of people paying 28 per cent of income tax, that means it shall take a lot more of us to cover the deficit if just one of that 1 per cent leaves. We must not allow this country to become one that appears to tolerate uncapped benefits for those who don’t work, yet vilifies those who do.
*Incidentally, the Office for Rail Regulation (ORR) has begun criminal proceedings against Network Rail for breaching health and safety law preceding the Grayrigg derailment. The first hearing in the case is in a couple of weeks. If Network Rail is found guilty, will the directors who deferred bonuses at the time of the derailment return the bonuses they received in subsequent years?
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