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RBS bonuses: Labour urges chancellor to enforce EU limit RBS bonuses: Government defends policy
(about 3 hours later)
Labour has urged Chancellor George Osborne to block any attempt by Royal Bank of Scotland (RBS) to pay bonuses of up to double its bankers' annual salary. The government has defended its position on bonuses for bankers at Royal Bank of Scotland.
Under EU rules, RBS can only pay bonuses up to that limit from 2015 if shareholders approve the decision. Both the Prime Minister and the chancellor said the government had ensured sufficient regulation of bankers and their pay.
But Labour has tabled a Commons motion calling on the government, which owns 80% of RBS, to reject any such move. Labour has demanded that George Osborne block any attempt by Royal Bank of Scotland (RBS) to pay bonuses of up to double its bankers' annual salary.
The party is also calling for more competition in banking. The government owns 80% of RBS and could block large bonuses.
Responding to a question about bankers' bonuses from Labour leader Ed Miliband in the House of Commons, Prime Minister David Cameron said he would veto any attempt by RBS to increase its overall pay and bonus bill. Under EU rules, from 2015 RBS can only pay bonuses up to 200% of annual salary if shareholders approve the decision.
But Labour has tabled a Commons motion calling on the government to reject any such move.
Shadow treasury secretary Chris Leslie said: "It looks like he [David Cameron] and George Osborne would approve such a request at a time when ordinary families face a cost-of-living crisis and bank lending to businesses is falling."
In response, David Cameron said he would veto any attempt by RBS to increase its overall pay and bonus bill.
But capping the overall bill is not the same as vetoing individual bonuses.But capping the overall bill is not the same as vetoing individual bonuses.
An RBS spokesman confirmed to the BBC that general discussions about bonuses had been taking place with shareholders, including UK Financial Investments, the body that manages the government's shareholding in the bank. As RBS is reducing its headcount across the group, it could still pay 200% bonuses to a dwindling group of investment bankers earning over £1m a year without increasing its overall pay and bonus bill.
But he said: "No decisions have been taken yet. We're consulting with our shareholders in the normal way." 'Consulting with shareholders'
If RBS did decide to award 200% bonuses next year, shareholder approval would have to be sought at this year's annual general meeting, probably in May.If RBS did decide to award 200% bonuses next year, shareholder approval would have to be sought at this year's annual general meeting, probably in May.
As it is, fewer than 100 RBS investment banking staff would be affected by the bonus decision, as RBS has reduced the size of its investment banking arm by about three-quarters since 2007.As it is, fewer than 100 RBS investment banking staff would be affected by the bonus decision, as RBS has reduced the size of its investment banking arm by about three-quarters since 2007.
This might allow RBS to pay 200% bonuses to a dwindling group of investment bankers without increasing its overall pay and bonus bill. An RBS spokesman confirmed to the BBC that general discussions about bonuses had been taking place with shareholders, including UK Financial Investments, the body that manages the government's shareholding in the bank.
But he said: "No decisions have been taken yet. We're consulting with our shareholders in the normal way."
Legal challengeLegal challenge
The normal limit for bonuses set by the EU is equivalent to one year's pay but the new EU rules allow this to be doubled with shareholder approval. The usual limit for bonuses set by the EU is equivalent to one year's pay, but the new EU rules allow this to be doubled with shareholder approval.
If a bank has its headquarters in the EU, the cap applies to all staff, even if they are stationed in non-EU countries, the British Bankers' Association (BBA) said.If a bank has its headquarters in the EU, the cap applies to all staff, even if they are stationed in non-EU countries, the British Bankers' Association (BBA) said.
The Treasury had already launched a separate legal challenge arguing against the EU's right to set any limits on banking bonuses at all, saying that such intervention could lead to an increase in base pay and undermine financial stability.The Treasury had already launched a separate legal challenge arguing against the EU's right to set any limits on banking bonuses at all, saying that such intervention could lead to an increase in base pay and undermine financial stability.
And Bank of England governor Mark Carney told the House of Commons Treasury Committee that he agreed with its opposition to bonus caps.
BBC business editor Robert Peston said the situation created an "awkward twist for the government".BBC business editor Robert Peston said the situation created an "awkward twist for the government".
He said: "Although pay levels for bankers have fallen... the sums shelled out still look enormous at a time when earnings for the vast majority of households continue to be squeezed.He said: "Although pay levels for bankers have fallen... the sums shelled out still look enormous at a time when earnings for the vast majority of households continue to be squeezed.
Shadow treasury chief secretary Chris Leslie said: "At a time when families face a cost-of-living crisis and bank lending to business is falling, it cannot be right for George Osborne to approve a doubling of the bank bonus cap.
But Conservative MP Mark Garnier said bonuses were a "reward for enterprise" and he accused Labour of attempting to "destroy the one industry we have which is a net exporter of services".
Branch salesBranch sales
The BBC's political editor, Nick Robinson, said the move by Labour was part of its attempt to say that the prime minister and his chancellor "stand up for the wrong people".The BBC's political editor, Nick Robinson, said the move by Labour was part of its attempt to say that the prime minister and his chancellor "stand up for the wrong people".
On Friday, Mr Miliband is expected to flesh out details of a proposal made last year to force the big High Street banks to sell off branches, the BBC understands.On Friday, Mr Miliband is expected to flesh out details of a proposal made last year to force the big High Street banks to sell off branches, the BBC understands.
He wants to promote the growth of new banks that could challenge the "big five" - Royal Bank of Scotland, HSBC, Lloyds, Barclays, and Santander.He wants to promote the growth of new banks that could challenge the "big five" - Royal Bank of Scotland, HSBC, Lloyds, Barclays, and Santander.
"We've got to give customers more choice," Chris Leslie told the BBC."We've got to give customers more choice," Chris Leslie told the BBC.
But banking analyst Ralph Silva said: "What makes anybody believe that there's a queue of people willing to buy these branches? New and smaller banks - they don't want more branches, they want more apps. There's no market for branches out there."But banking analyst Ralph Silva said: "What makes anybody believe that there's a queue of people willing to buy these branches? New and smaller banks - they don't want more branches, they want more apps. There's no market for branches out there."
He argued competition would only increase if new players, such as supermarkets, and car companies, entered the market.He argued competition would only increase if new players, such as supermarkets, and car companies, entered the market.
The BBC's Newsnight reported that Mr Miliband may suggest a cap on the size of banks, possibly based on their share of the UK market. The BBC's Newsnight reported that Mr Miliband may suggest a cap on the size of banks, possibly based on their UK market share.
However, business sources told the programme that such an intervention was another example of an anti-business sentiment in the Labour Party.However, business sources told the programme that such an intervention was another example of an anti-business sentiment in the Labour Party.
Last year, Mr Miliband said a new Labour government would impose a price freeze on energy prices.