WAR ON BANKS AFTER BONUS ROW EXPLODES
POLITICIANS rounded on bankers yesterday amid fears a windfall tax on bank profits is on the cards for the pre-budget report next week.
The concerns came as a report from the National Audit Office (NAO), released today, revealed for the first time that the government has spent £117bn bailing out the banks.
Lord Myners, the City Minister, said bankers should “come back to the real world” and stop thinking they are entitled to multi-million pound bonuses. The Conservatives said no “significant cash bonuses” should be paid out this year.
But hours after the board of Royal Bank of Scotland threatened to quit if the Treasury tried to block a £1.5bn bonus pay-out, the bank signalled that it will bow to pressure to pay its top bankers less than rivals.
Meanwhile, the NAO said the total value of support provided to the banking system, including the purchase of shares by the public sector, together with offers of guarantees, insurance and loans to banks totalled £850bn.
But the final cost to the taxpayer – estimated by the Treasury to be between £20bn and £50bn – “will not be known for years”, the NAO report said.
Despite this “unprecedented level of support”, RBS and Lloyds are unlikely to meet lending commitments to businesses, the NAO said.
The report also revealed that the Treasury gave RBS, which is now 70 per cent owned by the taxpayer, a clean bill of health less than a week before having to bail it out in October 2008.
And at the height of the crisis the government considered closing down HBOS, which owns Britain’s biggest mortgage lender, Halifax.
Conservative Treasury spokesman Mark Hoban said the report showed that the government was failing “to get banks to lend”.
“In order to get the economy going again it is vital that banks lend more to businesses who are struggling to find finance. Credit is crucial,” he said.
“This is why we would not pay out significant cash bonuses this year.”
Prime Minister Gordon Brown tried to play down suggestions that RBS was being singled out.
“Nobody is being discriminated against because every bank is having to follow these procedures,” he said.
Harriet Harman, the Leader of the House of Commons, condemned the banks as “reckless” and “irresponsible” and Vince Cable said the government should “call the bluff” of the RBS directors and accept their resignations. But it is understood that RBS pay-outs will now be at the low end of the scale even if it means losing staff.
Amyas Morse, the head of the NAO, said it would be difficult to imagine “the scale of the consequences for the economy and society if major banks had been allowed to collapse. The big question is what all of this will eventually cost the taxpayer?”
“How the eventual sale of RBS and Lloyds is managed will be crucial to protecting the public interest.”
It also emerged that Lloyds is to hand out bonuses totalling £2.4m for board members, including £828,000 for chief executive Eric Daniels. And around 200 other executives will receive bonuses worth up to 80 per cent of their salary.
Meanwhile, chancellor Alistair Darling is expected to set out a pre-budget report next week that will increase tax increases on the wealthy but defer new measures to cut Britain’s £175bn deficit.