Online Finance Blog

George Osborne, the shadow chancellor of the Conservative Party spoke out yesterday against Britain’s Retail banks paying ‘significant’ cash bonuses to employees in finance jobs. He believes there should be a drive to plough profits back into new lending and rather than paying out large bonuses, the money should go into the banks balance sheets explicitly to support new lending. Osborne, who named no individual institutions, is believed to have been alluding to the four big high street banks, Lloyds, Royal Bank of Scotland, HSBC and Barclays.

He called on the Treasury and Financial Services Authority to work together and stop retail banks ‘paying out profits in significant cash bonuses’. Osborne’s reaction comes after Gordon Brown said that he would crack down on unreasonable bonuses, the Prime Minister said “We are continuing to act on unfair and excessive bonuses being paid in the banking system that your money helped save.” Liam Byrne, chief secretary to the treasury said ‘We have stopped short of banning all bonuses for retail banks because it is unworkable, but we are presently negotiating with RBS and Lloyds on the payment of 2009 bonuses.”

Osborne’s call for a ban, which is the strongest attack yet by the Tories on banks suggested the bonuses be paid in shares to employees in banking jobs and that they should not be cashed for at least three years and he claimed that billions of pounds in ‘subsidised profits’ threatened to worsen the credit crunch.

With the tax payers bailing out the bank to help increase lending again, Osborne argued that the move wasn’t intended to leave Britain in a position where credit was being rationed while banks return to their big bonuses.

An argument that will continue to grow and develop I am sure, but who is right? Do we run the risk of losing invaluable financing and accounting staff in the haste of a total ban of bonuses or is it ludicrous to think that any member of banking staff should receive bonuses after the tax payers bailed the banks out last year?