Labour’s hypocrisy over knighthoods, bank bonuses, railway bonuses and the vilification of success

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.

In fact, bankers’ pay appears to be falling and pay increases among FTSE 100 directors are close to 3 per cent, rather than the misinformed reporting of figures like 49 per cent.

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?

Follow Craig on Twitter @mrsteeduk

Follow Nik on Twitter @NikDarlington

PMQs review: Questions surrounding Edward’s leadership remain unanswered

Jack Blackburn 1.20pm

The battlelines for this week’s PMQs were bizarre. In theory, it should have been a tough day for the Prime Minister, given the overall rise in unemployment which had been announced earlier.

However, he was up against a Leader of the Opposition who has spent most of the past month doing a Norma Desmond impression in order to defend his record: “I am big. It’s the party that’s got small.”

In short, Dave needed to mount a fierce defence of the Government’s employment policies and Edward needed to deliver a knockout performance.

So, Dave had combed the figures to find anything positive. And to be fair, he did. There was a decrease in long-term unemployment and the number of young people who had been out of work for more than 12 months was also down. With the endless lists of government initiatives designed to create more jobs, there was some ammunition for him to use. However, when the economic climate is grim, it should - I repeat, should - be very hard for the Prime Minister to win an exchange such as the one he was faced with today.

Enter Edward Miliband. As with last week, we saw the calmer Edward, trying to not be preachy, screechy and, crucially, not attempting humour.

However, Edward’s problems have not just been presentational. They have also been strategic, and the element which was highlighted today was his lack of policy detail. Generally, Edward selects figures that are bad for the Government and seems to expect them to carry him through.

Increasingly, although he is becoming steadier, Edward still sounds like a biased newsreader, relating all of the government’s woes to the House without having the guts to suggest any hard policy in the chamber. Very soon he will discover that saying that the government is wrong is not enough. We still have no idea what Edward would do about it.

That perennial issue aside, this session remained in the balance. The Prime Minister had a couple of lines up his sleeve and managed to land some punches, executing a sturdy defence. He was still vulnerable because the news remained poor at its heart, no matter how many little positives he drew out of it. Edward didn’t have the ability to exploit this weakness at all. The questions surrounding his leadership remain utterly unanswered.

Follow Jack on Twitter @BlackburnJA

Sketch: Edward tells porky about railways in dull PMQs

Jack Blackburn 2.29pm

With Edward very much on the back foot, he needed to be able to claim something from the first PMQs of 2012. Given that, his tactics were baffling, even if it is fair to say that his performance skills showed signs of improvement.

It was notable that Edward had calmed down a bit and was less irritating than is habitual. He was more measured, less whiney, though he still had a righteous earnestness about himself that remains deeply irritating. Still, an improvement is an improvement.

The choice of questions was bizarre. The last two were about Scotland, on which he agrees with the Prime Minister, but the first four were about train fares. Now, I have spent a lot of time on trains. I think that the rise of fares is utterly extortionate. I would love to see it discussed more at the national level.

However, we didn’t get a discussion, so much as a squabble. Edward stood up and demanded to know why some fares had risen by almost 11 per cent. The Prime Minister said, clipped and curt, it was because the Labour government had given train companies the power to do so.

The remainder of the exchange on this topic can be neatly summarised thus:

Edward: No, we didn’t.

Dave: Yes, you did.

Edward: No, we didn’t.

Dave: Yes, you did.

Edward: No, we didn’t.

Dave: Yes, you did.

As you can imagine this was thrilling stuff. Edward didn’t make much of a point other than that excessive fares are bad and Dave didn’t say much more than it’s all Labour’s fault, which presumably he now says whenever he is in doubt, though, to be fair, in this instance, the House of Commons Library shows that he is correct. Furthermore, in 2009 the Labour government announced a cap in fares for 2009, not from 2009 (h/t Joe Murphy, Evening Standard).

It was a dreadfully dull PMQs, and Edward came out of the exchanges with nothing other than an agreement with the Prime Minister about Scotland. Hardly earth shattering.

While I applaud Mr Miliband for taking two of his questions out to discuss this important issue, thereby sacrificing two further opportunities to make political capital, I’m not sure that his political opponents within his own party will see it like that. He lives to fight another day, yet his tricky start to the year continues.

Follow Jack on Twitter @BlackburnJA

Executive pay argument is a distraction and not based on reality

Daniel Cowdrill 11.15am

Both David Cameron and Edward Miliband competed over the weekend to sound tough on executive pay. They both criticised what they see as ‘excessive’ pay at the UK’s biggest companies.
We were told that executives are on a ‘merry-go-round’, where remuneration committee members sitting on each other’s boards, ‘pat each other’s backs, and hand each other pay rises’.
A range of policies are now being proposed to combat this percieved corruption, such as making pay rewards legally subject to shareholder votes.
However, the definition of the problem bears no resemblance to reality. Research by Manifest shows that only 5 per cent of FTSE 100 directors sit on another FTSE 100 board, and of these only twenty directors sit on another company’s renumeration committee.
As Robert Peston has said, there is ‘no practical mechanism for executives of different companies to pay lavish amounts to each other by sitting on each other’s boards, in the way that Mr Cameron seems to believe is rife.’
Furthermore the idea of executive pay being accountable to shareholders, nice as it sounds, isn’t that simple. With globalised capital investors are more transient. Their interest may only last a few days or even a single morning. Longer term investors tend to be ‘sleeping’ investors, more interested in the value of the company rather than the parochial matter of individual pay agreements.
A small investor may hold shares in twenty companies listed in London; a big investor in many more companies across the world. They are hardly likely to have the time or the inclination to pour over the pay deals of every single executive.
In the unlikely event that executive pay becomes so unwieldy that it affects company productivity, I wouldn’t mess about leading a campaign against the board of directors. Quite simply, I’d sell my shares.
However, this misguided perception of cronyism and the equally misguided response of our political leaders is not my main concern. My concern is that the sheer political effort being expended on the issue is a distraction from declining social mobility and entrenched educational underperformance.
In his second principle of justice, John Rawls argued that social and economic inequalities are fine as long as they satisfy two conditions: first, that positions and offices are open to all under conditions of fair equality of opportunity; and second, that inequalities are to the greatest benefit of the least advantaged members of society.’
I broadly agree with this principle, yet it is evident that the tax collected from blue-chip companies and their executives, which must amount to tens of billions of pounds, is not being spent effectively on education and training. It is vital that young people are equipped with the tools to compete in the global market place.
Only seven other OECD countries spend more than the UK per pupil (approximately £54,000), yet the UK is falling down the respected PISA survey. In 2010, the UK was ranked 25th for reading, 28th for maths and 16th for science. In 2006, when 57 countries were included in the study, it was placed 17th, 24th and 14th.
Significantly, the UK has a greater variation in reading standards attributed to class differences than almost every other country in the OECD. The proportion of students from poor homes who achieve higher than expected scores is lower in the UK than across the OECD on average. Just 24% as against an OECD average of 31%.
Furthermore, the UK is one of only a few countries where richer pupils have more teachers than poorer ones. Only in Israel, Slovenia, Turkey and the US is this also the case.
We would be better advised to spend the same political effort on driving education and training for millions of young people rather than on a misguided war against the pay of a small minority of executives.