A misguided cap on Bankers’ bonuses

Alexander Pannett 3.30pm

And so they are marching again. The restless European Parliament is finally getting its revenge against the unscrupulous “Anglo-Saxon” capitalists in London. It has voted to reign in bankers’ bonuses, reducing permitted amounts to the base salary of bankers.

The rules would apply to Europe-based employees of any bank, as well as to staff of European banks wherever they are located. That means a Barclays trader working in New York would be subject to the cap, as would a Goldman Sachs banker based in London.

I am sceptical of the bonus cap’s effectiveness. The reduction of bonuses will mean that remuneration will be granted in the form of higher salaries.  This adds inflexible costs to financial institutions which, in a crisis, will have to reduce head-count rather than being able to cancel bonuses in order to preserve capital levels. It will lead to the increased use of temporary contracts as banks seek to maintain flexibility.

Increased salaries, rather than bonuses, also moves the City away from performance related pay. Bankers will receive salaries despite the poor risks and mistakes they make. Failure will be rewarded. This is also unnecessary as recent claw-back regulations have been introduced which are designed to ensure remuneration is performance linked. Bankers whose trades made losses in the long-term would see their bonuses reclaimed, which incentivises bankers to consider long-term risks. Higher salaries do not ensure that bankers mitigate risks.

I also have an intrinsic revulsion at politicians who interfere with business for political or even emotive reasons. Do these politicians understand or even care about the effect that these changes will have on London’s financial services, which is a considerable European strategic asset? I suspect they do not.

Despite my above concerns, we must not ignore the considerable antipathy that the British public holds for the financial sector. It is almost satirical that RBS, which was saved with taxpayer’s money, has posted 2012 losses of more than £5 billion whilst paying out £600 million in bonuses last year. This European cap on bonuses may be mis-guided but that does not mean the City now smells of roses.

A reform of the bonus culture may indeed be needed, such as substituting locked-in equity for current bonus structures or changing the criteria for awarding bonuses so that they are more strongly linked to the overall performance of a financial institution. However, this European cap on bonuses is not helpful and will be counter-productive as it harms the international competitiveness of one of Europe’s few remaining engines of economic growth. The prime minister is right to resist.

Follow Alexander on Twitter @alpannett

Look to Stansted?: expanding Heathrow is a ‘ludicrous proposition’, says Steve Norris

Nik Darlington 10.48am

TRG patron Steve Norris has popped up on the Times comment pages (£) this morning endorsing an interesting idea: solve the south-east’s air capacity problem by expanding Stansted Airport.

Opting for Stansted is, says Mr Norris, the “least worst option”, as an extra runway (or two) at Heathrow would be “ludicrous”:

“[Enlarging Heathrow has] a powerful argument, attractive to business users but completely unacceptable. Heathrow is simply too close to London. The third (short) runway would not only mean an increase in flights low over the city with all the pollution and noise that implies, but would effectively obliterate a village. A fourth [runway] would raze thousands more homes to the ground. It is a ludicrous proposition and all parties have been right to oppose it.”

Crossrail, due for completion in five years, offers the solution:

“From east of Stratford a 10-kilometre rail tunnel spur emerging at Fairlop Water and following the line of the M11 could link Stansted directly to Central London and take passengers to Heathrow without changing trains. There is the capacity for six trains an hour, more than the Heathrow or Gatwick expresses. Journey time to Tottenham Court Road or Bond Street would be around 40 minutes. And all for around £5 billion.”

Mr Norris, a Transport Minister during the 1990s, gives short shrift to the Mayor of London’s island airport idea:

“Not only does [an estuary hub airport] require the closure of Heathrow…but it is predicted to cost £50-100 billion. In truth the scheme is a brilliant CGI but unworkable in practice. Its flight paths would conflict with existing Schiphol holding patterns and the proposal is very light on transport details beyond a broad statement that there would have to be new rail and road connections. It is not going to happen.”

Stansted Airport expansion is not a new idea. Indeed, Boris Johnson offered his support for it, albeit as a stop-gap, as recently as this summer. And as with Heathrow, it has its own vociferous ‘anti’ campaign group.

But if indeed we do desperately need to expand airport capacity in the south-east of England (as opposed to elsewhere, such as increasing the capabilities of Birmingham Airport), then Steve Norris is absolutely right that Heathrow would be unacceptable and he is probably right that ‘Boris Island’ would be overly expensive and logistically impossible (as much as I like the idea).

On this basis Stansted Airport, allied with Crossrail, does seem like the least worst option.

Follow Nik on Twitter @NikDarlington

‘Without the new, there would never be any old’

Craig Barrett 6.01am

Sitting watching the Queen’s Speech last week, I was reminded of how much better Britain does pomp and ceremony than other countries. European militia look faintly ridiculous in comparison.

And on 4th May, I felt hugely privileged to attend the Trial of the Pyx, a ceremony that goes back some nine hundred years. Every year, the Worshipful Company of Goldsmiths is responsible for assessing newly minted coins, to ensure they conform to required standards in terms of size and quality of metal. Present is an expert panel of assayers and the Queen’s Remembrancer (the senior Master of the Queen’s Bench), certifying above all that the Master of the Mint has not been shaving gold or silver from the nation’s coinage.

The Master of the Mint, George Osborne, was indeed there this year, so restoring a relationship broken between 1997 and 2010 by Gordon Brown and Alistair Darling. We are, of course, more than aware of Mr Brown’s attitude towards our nation’s gold reserves.

After assessing the coinage, the Verdict of the Pyx is delivered. Safe to say, it passed the test. We then repaired to luncheon to hear an address from the Chancellor of the Exchequer. Among non-disclosable political comments, Mr Osborne chose to highlight the fact that the Royal Mint provides currency to more than sixty countries around the world - a true export success to boot.

I was accompanying the inimitable Catherine Bott, herself the guest of the Prime Warden of the Worshipful Company of Goldsmiths, Hector Miller. Unlike many Livery Companies, the majority of the Goldsmiths actually practise in their field, so we were in the presence of true craftsmen. At the new Goldsmiths Centre in Clerkenwell, you can see for yourself.

Funded partly by a bequest in 1514 when Agas Harding, a widow of a Goldsmith, left the Company a small amount of land in Holborn, the Company decided some years ago to put it to good use and create something to assist nascent craftsmen. Workshops are available at competitive rents, as well as extensive facilities for teaching. What impressed me most was that the focus is not simply on passing on techniques but also what we might call “life lessons”. There are classes on managing accounts and business planning - vital skills for the self-employed that might otherwise be overlooked.

The Goldsmiths have a long history of involvement in education. Goldsmiths College is the most obvious example, but the Company was also closely involved in the founding of Imperial College. This could be a kernel of the ‘big society’ - independent of the state, they have created a unique learning space for craftsmen and the public.

Catherine commented that she rather likes antique jewellery, to which I responded, “without the new, there would never be any old”.

What is marvellous about the new Goldsmiths Centre is the way in which the old has been able, hopefully, to continue to create the new. I urge you to pay it a visit.

Follow Craig on Twitter @mrsteeduk

It is simple: we cannot allow the offensive and malicious Ken Livingstone back into City Hall

Craig Barrett 11.39am

Polls polls polls! “Boris lead narrows!” “Ken less popular than his party!” “Boris more popular than Tories!” “Only 12% of people believe that Ken is honest!”

While opinion polling has become much more sophisticated, anyone who watched the 1992 general election coverage on Easter Monday would know that only one poll matters: when you enter your booth and wield your pencil (unless you live in Tower Hamlets, of course).

With just one week to go until the election for London’s mayor, the current polling serves only to allow campaigners to twist and spin to whatever advantage possible and to remind people (like me) that we should be doing more to help.

I feel a bit sorry in some ways for the London Labour party. They have had a candidate forced on them who seems to owe no loyalty to them barring the right to campaign under their banner and deploy their activists for his own ends.

Had Labour picked someone else, Mr Livingstone, who believes the mayoralty his divine right, would have run as an independent candidate as he did in 2000.

Mr Livingstone’s campaign is a goulash of undeliverable policies, bold but inaccurate pronouncements about his Tory opponent, and craft attempts to shift the media’s focus away from his own activities. It is not so much that Mr Livingstone is a stranger to the truth, it is more that lying and smoke-screens come easier to him.

To Mr Livingstone, it matters not that he has no power to restore the EMA, or that the TfL ‘cash mountain’ is intended for investment rather than fare giveaways. To Mr Livingstone, it matters not that the only experience he has to validate his comments on Boris Johnson’s tax affairs comes from his own hypocritical tax avoidance. To Mr Livingstone, it matters not that what spews from his mouth is offensive to one group of Londoners or another.

Mr Livingstone has given us no compelling reasons to vote for him; no policies on which any Londoner can be certain of his delivering. His crony-aplenty, wasteful record in City Hall speaks for itself.

Contrast that figure with Boris Johnson, who has actually delivered on his promises - whether policing, sustainable housing, tax freezes and others - and whose plans are both costed and practical.

But above all else, consider two vital points. First, I am not old enough to remember Mr Livingstone’s reign as leader of the Greater London Council but I know enough to understand it for what it was: a publicly funded one man crusade of self-justification, with money poured down the drain to embarrass Mrs Thatcher’s government or to challenge its actions in the courts.

The Mayor of London must speak for the city with an independent voice, but they must also be able to co-operate with central government to ensure the best for the city. For at least the first three years of the next mayor’s tenure there will be a Conservative politician in 10 Downing Street and while Mr Johnson and Mr Cameron may not be close personally, they do at least have a mutual understanding and interest.

Boris Johnson is a doughty fighter who has regularly exercised his inherent independence to seek the best for London. Mr Livingstone’s egomania and pathological hatred of the Tories will mean that were he to be elected next week, it would be the start of at least three years of pitched battles on meaningless fronts, all paid for by London’s rate payers.

Second, and perhaps most important, Mr Livingstone’s public utterances over the past few months demonstrate the type of man he is.

Whether suggesting that a councillor in Hammersmith & Fulham ought to “burn in hell…and…flesh be flayed for demons for all eternity”; whether suggesting that gay bankers in the Middle East could be mutilated; whether suggesting that London’s Jewish population is too rich to vote Labour; or whether simply another cheap insult at a critic, Mr Livingstone appears oblivious to the effect of his own words.

It is not good enough for the Labour party to say “Ken is just being Ken”, or words to that effect. Mr Livingstone is no Jed Bartlet, and the fact that many in the Labour party are doing their best to distance themselves from their own candidate shows the whole strategy is a farce.

In a few months, the eyes of the world will be on London and other cities around the country as Britain hosts the Olympic & Paralympic Games. Boris Johnson may be gaffe-prone but unlike Mr Livingstone his gaffes are rarely offensive and certainly not malicious. We in this great and historic capital city cannot afford to have as our mayor a man who appears to set his stall deliberately to offend others.

For this reason, above all others, I urge you to back Boris Johnson as Mayor of London.

Follow Craig on Twitter @mrsteeduk

Lib Dem wins London Marathon!

Nik Darlington 10.32am

The Liberal Democrats don’t win many things these days but one of the party’s backbenchers led the field of MPs in yesterday’s Virgin London Marathon.

Greg Mulholland romped home in 3 hours 42 minutes, thirteen ahead of his closest challenger and fellow marathon veteran, Ed Timpson.

It is probably not a portent for the next general election, but here is the full list of MPs with their times from the official results page:

• Greg Mulholland (LD, Leeds NW) - 3h 42
• Ed Timpson (C, Crew & Nantwich) - 3h 55
• Alun Cairns (C, Vale of Glamorgan) - 4h 03
• Chris Kelly (C, Dudley S) - 4h 17
• Jack Lopresti (C, Filton & Bradley Stoke) - 4h 22
• Graham Evans (C, Weaver Vale) - 4h 46
• Ed Balls (L, Morley & Outwood) - 5h 31

Making Mr Mulholland’s feat all the more impressive is that he had already run the Paris Marathon last weekend, before setting out on a 600-mile bicycle ride from Yorkshire to London, in aid of the Jane Tomlinson Appeal 10th Anniversary Challenge.

Alun Cairns finished impressively in just over 4 hours having aimed to complete the 26 miles and 325 yards course in something closer to four-and-a-half hours.

And shadow chancellor Ed Balls thanked the crowds for getting him home in his target time of five-and-a-half hours.

As someone who ran their third (and final!) marathon yesterday, I know that it is the slow plodders like Mr Balls who deserve our most respect. I will always maintain that anyone can do a marathon, and while few can do it quickly, it takes a different strength entirely to drag yourself across the finish line after so many hours of running.

Well done to everyone who took part, on what was a perfect morning for running. And thank you to the crowds, who truly did get us all home.

Follow Nik on Twitter @NikDarlington

I’m wishing all MPs the very best for the London Marathon (as long as I’m not overtaken by Ed Balls)

Nik Darlington 8.31am

The weather forecast might be frightful (I prefer my going hard, hot and dry) but I am actually looking forward to lining up alongside more than 30,000 fellow runners this Sunday in the 2012 Virgin London Marathon.

It is, however gruelling, the most wonderful event. Life changing, even. And indescribably so.

Yet this is a political blog, so here’s the politics. On Sunday, I will be sharing the starting line with eight MPs - some, like Alun Cairns, completing their first marathon and others, like Ed Timpson, their umpteenth (for the record, seven in London and nine overall).

The field comprises six Tories (Cairns and Timpson are joined by Graham Evans, Chris Kelly, Philip Lee and Jack Lopresti), one Liberal Democrat (marathon veteran Greg Mulholland) and one Labour MP, none less than the shadow chancellor, Ed Balls.

One shouldn’t really be partisan about these things and comment on the paucity of Lib Dem and Labour MPs taking up the challenge. The Lib Dems, after all, have very few MPs, and some of them are Charles Kennedy and John Hemming.

But are there really no other Labour MPs than Ed Balls able to run a marathon, or even to contemplate running a marathon? (There’s a joke in there about political parties lasting the course: answers on a postcard please.)

I’m actually rather pleased that the pugnacious Mr Balls is the man to put his hand up. As keener readers know, the shadow chancellor and I have form when it comes to on-field rivalry, both turning out occasionally as wicket-keepers for the Lords & Commons cricket team. I desperately hope I don’t see him approaching over my shoulder, but I wish him all the best - the very best, in fact.

They are all running on behalf of worthy causes, including a variety of local hospices (I am raising money this year for St Richard’s Hospice, Worcester).

And I hope as many readers as possible will turn out and cheer on them - and all the other runners - whatever the weather, as people of all shapes and sizes achieve the most Olympian of feats, in this, the most Olympian of years.

Follow Nik on Twitter @NikDarlington

Breaking down the Budget

Sara Benwell 10.53am

Another year, another Budget. Another abortive attempt to find a pub with a garden and a telly with the Budget on it, so that I can enjoy the sunshine and a glass of wine (but perhaps not, thank you very much George, many more cigarettes).

This year’s Budget has been called ‘radical’ by members of the press. It contains many positive elements, including tax measures to help the lowest earners and stamp duty increases for the most expensive properties.

On the negative side, pensions have taken a pounding and there is scant help for the nation’s savers. Let’s look at the headline measures and see what they actually mean in practice.

Income Tax personal allowance to be increased to £9,205 in April 2013

This is the big good news story, which will mean a real cash gain for British workers. George Osborne said this Budget would reward work and this will do so, while also keeping the Lib Dems happy (it is, in essence, a policy they mostly instigated). It means that the Government is hopefully going to reach the £10,000 level desired by Nick Clegg sooner rather than later.

It is worth noting, however, that hidden in the Budget, the Chancellor has lowered the threshold for the 40p higher tax rate from £42,475 to £41,450.

50p top tax rate to fall to 45p

This could be interpreted as a political gamble, rather than financial decision. A nod to the well-heeled and a sop to the right-wing, it could sit well with ‘traditional’ Tory voters.

But it isn’t. While the move will only (directly) assist the highest earners, Mr Osborne said the 50p rate had distorted the economy by encouraging tax avoidance and the cut to 45p will only cost the Exchequer £100 million.

He also claimed the richest would be paying five times more than before, due to other measures such as the increase in stamp duty on properties worth more than £2 million.

Age related additional personal allowance to be phased out

This is already turning out to be the biggest headline of the Budget, with #GrannyTax being the highest trending topic on Twitter yesterday afternoon. Commentators circled in their droves to criticise the changes, for instance Iain Martin on Telegraph blogs, who said it would “spark a war between the generations”.

The Chancellor announced a phasing out of the higher income tax allowance, meaning that from next year, people turning 65 will no longer qualify for the higher rate allowance of £10,500 and instead only receive the standard allowance, which was raised to £9,205. This change, reported to be worth an additional £3.3 billion over the next five years for the Treasury, represents one of the biggest money-makers of yesterday’s Budget.

It is a strange move from Mr Osborne, given that retirees are, statistically speaking, more likely to vote - and vote in great numbers. (While the top rate reduction, conversely, will affect very few voters.)

What we have to remember is that pensioners have also borne the brunt of quantitative easing as annuity rates have been hit hard (see Fraser Nelson’s figures of an ‘annuities rate massacre’ on the Spectator’s Coffee House), and whose savings are already hit by with record-low interest rates.

Nevertheless, we ought also remember that most pensioners don’t pay any tax at all and this change will only affect those who earn more than the average working wage.

Child benefit gradually withdrawn from those earning over £50,000

Mr Osborne has bowed to considerable pressure from his own MPs and diluted plans to remove Child Benefit from all families containing at least one higher-rate taxpayer.

Under this new scheme, anyone earning up to £50,000 will be able to keep their Child Benefit, worth £1,055.

Child Benefit will still disappear but now only gradually for parents earning between £50,000 and £60,000. Earn above £60,000 and you will lose the lot.

One of the biggest concerns with the original plan was that it didn’t take into account single income families with that single income falling into the higher bracket - and this problem still exists. Mr Osborne will continue to face criticism as the cuts hit families with a sole high earner on more than £60,000 but not families with two parents earning up to £49,000 each.

New Stamp Duty of 7% on properties worth more than £2m (and rate on company-bought properties rising to 15%)

It is a policy designed to show that the biggest burden should fall on the wealthiest.

It will mean that anyone purchasing a property above the £2 million threshold will be looking at a Stamp Duty bill of at least £140,000.

Property investors will also be a casualty of the new charges on high-value homes.

The Chancellor emphasised a crackdown on tax avoidance and unveiled three extra levies on people buying homes via companies. In future, people who purchase properties for £2 million or more via a company will have to pay Stamp Duty at 15 per cent.

There will also be a consultation on whether people who have already bought homes worth more than £2 million through companies should have to pay an annual levy.

These Stamp Duty changes will have a disproportionately high impact on the London property market. Take just one borough, the Royal Borough of Kensington & Chelsea, for instance, whose average property price is more than £2 million. Some are concerned it could have negative repercussions for London as an international business centre as it will discourage corporate executives from basing businesses in the capital.

Follow Sara on Twitter @sarabenwell

Boris Johnson and the Angel in the Marble

David Cowan 10.15am

Boris Johnson is the darling of the Tory grassroots. From the pulpit of his Telegraph column he has hurled bread to his Tory base. His support for tax cuts, higher police numbers and his stance on Europe reveal a populist streak. He has earned the affection of ordinary Tory voters in a way no other Conservative politician, including David Cameron, has managed.

That is not to say Boris Johnson is a Tory ideologue. He is a very much a Tory pragmatist who has tried to appeal to the liberal metropolitan London electorate with substantial increases in the London Living Wage, criticism of housing benefit reform, and support for an amnesty for illegal immigrants. Appealing to the outer suburbs will not be sufficient for a successful re-election campaign. Getting out the vote will be his first priority and that means he has to appeal to a very broad range of people.

This approach has risked making attempts to identify Boris Johnson’s political philosophy like nailing jelly to the wall, but his appeal to the traditional Tory base and the wider liberal metropolitan electorate has been reconciled by the man himself:

“I’m a one-nation Tory. There is a duty on the part of the rich to the poor and to the needy, but you are not going to help people express that duty and satisfy it if you punish them fiscally so viciously that they leave this city and this country. I want London to be a competitive, dynamic place to come to work.”

This is reflected in his impressive record as Mayor (see my earlier blog here), with greater investment in public infrastructure, falling crime rates, and the freezing of council tax. But Boris seems to lack a singular, large achievement that people can easily identify.

By contrast, Ken Livingstone has developed his own narrative by attempting to transform the Mayoral Election into a referendum on ‘Osbornomics’.

Boris Johnson’s personal popularity and impressive record may be enough to secure a second victory but it will do very little for the Conservatives in London. Polling puts the party well behind Labour. This may well mean that the Conservatives will lose the London Assembly but, more seriously, it will also mean a lack of support in the London constituencies that are needed to win the next General Election in 2015, such as Hammersmith.

Boris Johnson must use his time in power to see the Conservative voter in the London electorate as a sculptor sees “the angel in the marble”, as the Times claimed Benjamin Disraeli once did. There are limitations to the Mayor’s powers, but the key to establishing a wider Tory base could lie in his ‘One Nation’ vision.

One of the basic foundations of ‘One Nation’ conservatism has been the ‘property-owning democracy’, as popularised by Anthony Eden and first made a reality by Harold Macmillan’s ambitious 1950s housing programme. Boris Johnson could take this one step further by establishing a new generation of property-owners, and therefore more likely to vote Tory, by implementing a Right to Own scheme, as proposed by five Conservative MPs in ‘After the Coalition’.

Under the Right to Own scheme tenants of social housing would have an automatic share in the equity of the property which they could then choose to sell onto the open market. The equity owned by the tenant would then be used to help pay for a new private property and thus begin to climb the private property ladder. The rest of the money from the sale of the property would then go to the new ‘mayoral development corporations’, which will replace the London Development Agency, and be invested into new modern social housing to meet ever increasing demand in London. This would drive down housing prices and open up access to private property in London’s deprived areas, thus increasing the number of property-owners in London.

Coverage of this year’s mayoral election will inevitably focus the personalities of Boris and Ken. But Conservatives cannot lose sight of the long-term future of the party in London. A new generation of homeowners, supported by efficient infrastructure, effective policing and a prudent City Hall would provide a new Tory base in London from which to secure an overall majority in 2015.

Follow David on Twitter @david_cowan

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