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The furore over bonuses makes Britain seem less attractive than ever to foreigners who are mulling over whether to move their business here. Our top rate of tax, which George Osborne increased to 52p with his National Insurance hike, is the third-highest in the world. The UK divisions of global companies struggle to retain staff at a time when rivals like Singapore and Hong Kong are welcoming the rich with tax rates less than half ours. But the British government seems unwilling to mount any defence of its world-class finance industry, or to explain why bonuses are paid.
It is not greed. Most of us, if given the choice, would prefer to be paid more. This does not, alas, determine our salaries. The head of the Washington Post group assessed the value of one of its directors thus: ‘Mr Buffett’s recommendations to management have been worth — no question — billions.’ If Warren Buffett was paid $1 million for advice worth billions, this constitutes pretty good return for the shareholders. The sum may seem disgusting to someone on low pay, but it is not unjustifiable. Such are the economies of scale: as companies grow bigger, and the difference between good and bad managers becomes starker, the value of good managers soars.
With RBS, the obvious error was to draft a contract which meant a public servant — Mr Hester — could claim a seven-figure bonus at such regular intervals. The blame here lies with the Treasury civil servants who drew up the contract and the Labour government that signed it off. They ought to have realised the huge political sensitivities and simply ensured Mr Hester could have a bonus — an almighty one if need be — payable on RBS’s safe return to the private sector. If the bank were to be sold at a £200 million profit, thanks to Hester’s deft handling, then he could take his seven-figure bonus and ride off into the sunset with the thanks of a grateful nation behind him.
In the next few weeks, Barclays is expected to post massive profits and give a dazzling bonus to its chief executive, Bob Diamond. Under his guidance, Barclays has taken not a penny of shareholders’ cash during the crisis, preferring (to Vince Cable’s fury) to be bailed out by Qatari investors. It has hit its lending targets and is likely to have kept profits at around last year’s £6 billion. About £3 billion is likely to be collected in tax from Barclays and its staff — almost double the annual budget for the Foreign Office. Like all global banks, Barclays has the ability to declare its profits anywhere. Luckily for the British taxpayer, it does so in London.
At the very top of Barclays, however, executives are beginning to wonder if it is wise for any bank to keep its headquarters in Britain in such an atmosphere. Globalisation has brought to London huge companies whose bosses are paid gargantuan salaries. Do we want them? Even hardened capitalists can feel sickened by such extremes of wealth. But tolerating the rich is the price we pay for helping the poor. There are 14,000 people in Britain who are so well-paid that their individual tax bills are around the £1 million mark. Given that they hand most of their earnings over to the government, should they be despised for it?
David Cameron is fond of demanding that the rich pay ‘their fair share’ — his implication is that at present they don’t. But the much-maligned 1 per cent contribute 28 per cent of all income tax collected in Britain, a statistic that ought to comfort the most radical redistributionist. The government seems keener to play to the crowd than it is to protect Britain’s reputation as one of the world’s greatest places to do business. Playing the anti-banker card may boost the Tories’ lead in opinion polls, at least for now. But it will make us all poorer in the long run.
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