onder trust is at a low ebb in Britain today. Two major institutions – RBS and the NHS – have been shown to have failed. We devote much of our front page to some of the shameful emails sent by the traders involved in the Libor rate-rigging scandal; this has been another disastrous day for the City’s reputation, with the hundreds of thousands of honest people who work in financial services yet again seeing their reputation tarnished by a minority of idiots.
Meanwhile, a devastating 1,782 page official report has exposed the worst ever scandal in the NHS yesterday, one which led to a horrendous number of unnecessary deaths. Five other hospitals are to be investigated. It’s a huge and deadly affair. In both cases, unfortunately, the coalition has mishandled its response.
First, RBS. George Osborne’s statement that “taxpayers won’t be paying the Libor fine, bankers will” is misleading. The nationalised banks’ accounts are not consolidated within the government’s accounts. There was never any chance of extra cash being transferred from taxpayers to RBS as a result of the Libor fines, as much of the discussion and language used yesterday implied. Also, the fines were levied by the authorities on the bank, not on staff.
The only things that should matter are punishing individuals who do wrong, discouraging others from so doing and ensuring that all banks have the right systems in place to reduce the chances of future debacles; maximising the tax receipts generated from RBS and its staff; and maximising the value of the public’s 82 per cent stake in RBS, which eventually needs to be reprivatised.
The first point can only happen if the government is seen to be very tough with those who manipulate markets. There needs to be far more criminal prosecutions of white collar crimes and jail sentences. As to the second point, reducing bonuses of staff who were not involved in the scandal will prove to be a direct hit to the taxpayer, as pay is subject to high levels of income tax and national insurance. Demoralising RBS’s remaining employees will do nothing to boost the bank’s long-term value and share price. Of course, retaining cash could in theory boost the bank’s value but market capitalisations and balance sheet assets are two very different things. The fact that key management decisions – such as pay awards – are now openly being taken for political reasons will do more to depress RBS’s long-term value than any retained cash will do to bolster it.
Of course, the government, as RBS’s main shareholder, may genuinely believe that pay is still too high in its bank, and that lowering it would boost profits sustainably and hence long-term value. In that case, it should order its executives to pay well below market rates for all positions, permanently – and test its hypothesis. It would be a disaster, but so be it.
The only good news – and that is no excuse whatsoever for the absurd manipulation – is that the FSA made it clear that “the direct impact of actual manipulation of the Libor fix on UK retail consumers is likely to be minimal”.
Tragically, the same is not true of the NHS scandal. Banks needed to change their practices – and clearly, so does the UK’s health service, which is in desperate need of structural, cultural and managerial revolution. Yet it doesn’t seem as if anything will really change, for all of yesterday’s posturing. The coalition needs to be as tough on failing hospitals as it has been on corrupt bankers – though in both cases it needs be objective and cool-headed, rather than endlessly resorting to demagogy.