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Darling denies UK bonus U-turn France urges UK change on bonuses
(about 4 hours later)
UK Chancellor Alistair Darling has denied that the UK has changed its view on bank bonuses. French Finance Minister Christine Lagarde has urged the UK to change the rules governing bank bonuses.
UK Prime Minister Gordon Brown said in a joint letter with the heads of the French and German governments that they must explore ways to "limit" bonuses. She told BBC's Newsnight programme that nobody wanted a recurrence of the crisis that occurred 12 months ago.
But Mr Darling said earlier this week that the French plan to cap bonuses would be "unworkable". UK Chancellor Alistair Darling has said the French plan, for mandatory caps on bonuses, is "unworkable".
He told the BBC that the prime minister was merely showing the UK was prepared to work with other countries. Banker compensation will be high on the agenda of finance ministers from the Group of 20 richest nations (G20), who are meeting in London.
Shadow chancellor George Osborne said that Labour's "confusion" about its economic policy was threatening the economy. 'Horrible'
"It's further evidence of the growing tension between Number 10 and Number 11 [the prime minister and chancellor] that could do so much damage to our economic recovery," he said. "What happened 12 months ago was just horrible for our societies, it was horrible for our economies, and we are still suffering as a result," Mrs Lagarde said.
Finance ministers are poised to meet in London later, ahead of a meeting of the Group of 20 richest nations in Pittsburgh later this month. Bonuses are expected to be high on their agendas. I would be surprised that the excellent common law system of the UK does not find ways to make the collective determination enforceable Christine Lagarde, French finance minister class="" href="/2/hi/business/8239320.stm">Darling denies UK bonus U-turn class="" href="/2/hi/business/8237219.stm">Boosting economy to top G20 talks
Strong words "Nobody wants this thing to happen again and if we want to avoid a recurrence of the crisis, we need to change the rules."
Mr Brown, in a letter also signed by French President Nicolas Sarkozy and German Chancellor Angela Merkel, suggested his views on the issue of bonuses had relaxed. France is proposing a series of mandatory caps on bonuses - which the head of the Eurogroup of eurozone finance ministers, Luxembourg's Jean-Claude Juncker, said he "totally supported".
Mr Darling told the BBC that the UK favoured measures designed to make sure banks had higher capital reserves and were geared more to long-term growth.
But the UK and US have so far been reluctant to go as far as France is putting a limit on bankers' pay.
"Frankly I would be surprised that the excellent common law system of the UK does not find ways to make the collective determination enforceable," Mrs Lagarde said.
"Everybody knows that the compensation of someone is a driver for that person's behaviour so we need to look at compensation."
A meeting of the heads of the G20 governments will take place in Pittsburgh later this month.
Joint letter
On Thursday, UK Prime Minister Gordon Brown said in a joint letter with the heads of the French and German governments that they must explore ways to "limit" bonuses.
Darling: "We want to encourage long term growth and commitment"
"We should explore ways to limit total variable remuneration in a bank either to a certain proportion of total compensation or the bank's revenues and/or profits," they said."We should explore ways to limit total variable remuneration in a bank either to a certain proportion of total compensation or the bank's revenues and/or profits," they said.
"The abatement of financial tensions has led some financial institutions to imagine they can return to the same modes of action prevalent before the crisis. This is not an option," the letter added."The abatement of financial tensions has led some financial institutions to imagine they can return to the same modes of action prevalent before the crisis. This is not an option," the letter added.
That appeared to contrast with previous comments from Mr Brown that he did not favour capping bonuses.That appeared to contrast with previous comments from Mr Brown that he did not favour capping bonuses.
His comments suggested that he preferred finding mechanisms where banks could "claw back" bonuses if the bank later performed poorly.His comments suggested that he preferred finding mechanisms where banks could "claw back" bonuses if the bank later performed poorly.
"Gordon Brown is signalling that we are ready to work with other countries, but what we're really focused on, are practical proposals," Mr Darling said in an interview with the BBC's economics editor, Stephanie Flanders. Bonus proposals
Shadow chancellor George Osborne said: "Yesterday Gordon Brown signed a letter promising to explore bonus caps, and today Alistair Darling says those caps are unworkable." Mr Darling, in an interview with the BBC's economics editor, Stephanie Flanders, denied that the letter was a U-turn by the UK.
"It's further evidence of the growing tension between Number 10 and Number 11 that could do so much damage to our economic recovery." He said that the prime minister was merely showing the UK was prepared to work with other countries.
Different proposals And he said he thought the US, where there has also been a backlash over bonuses, would take the same view as the UK government.
Mr Darling said he thought the US, where there has also been a backlash over bonuses, would take the same view as the UK government.
If you cap bankers' bonuses, banks will either "jack up" their basic salary or go elsewhere, he said.If you cap bankers' bonuses, banks will either "jack up" their basic salary or go elsewhere, he said.
"For this to work, you have to get global agreement because all these banks are multinational," he said."For this to work, you have to get global agreement because all these banks are multinational," he said.
France is proposing a series of mandatory caps on bonuses - which the head of the Eurogroup of eurozone finance ministers, Luxembourg's Jean-Claude Juncker, said he "totally supported".
Mr Darling said that the UK favoured measures designed to make sure banks had higher capital reserves and were geared more to long-term growth.
"Inevitably, different countries will present different solutions," Mr Darling said."Inevitably, different countries will present different solutions," Mr Darling said.
In August, the UK's financial regulator, the Financial Services Authority, unveiled a new code that stated bonuses should not be guaranteed for more than a year. Shadow chancellor George Osborne said that Labour's "confusion" about its economic policy was threatening the economy.
Senior employees should have their bonuses spread over three years under the code, which is due to take effect from January 2010. "Yesterday Gordon Brown signed a letter promising to explore bonus caps, and today Alistair Darling says those caps are unworkable," he said.
The new rules to to link pay more closely with the long-term profitability of banks, are designed to address concerns that big bonuses led to excessive risk-taking at banks which contributed to the financial crisis. "It's further evidence of the growing tension between Number 10 and Number 11 that could do so much damage to our economic recovery."