THE government is threatening to slash bonuses at state-owned Lloyds Banking Group and Royal Bank of Scotland (RBS) if they miss their target of lending £94bn this year.
Government papers published alongside chancellor Alistair Darling’s Budget said UK Financial Investments, which controls the taxpayer’s stake in the banks, had the power to “work with the remuneration committees” if lending fell short.
RBS is obliged to lend a gross £50bn to businesses in the next 12 months while Lloyds is required to supply £44bn in financing. Around half the money will go to small and medium-sized enterprises. Although the numbers seem hefty, they are similar to last year’s levels.
The Treasury’s threat to curb payouts is a chastening reminder of the government’s ownership of the banks, which paid a modest £1.5bn in bonuses between them in 2009.
“We intend to get all taxpayers’ money back,” said Darling, who went on to use his House of Commons speech to urge the City to help “people and businesses achieve their ambitions” by extending credit.
Typical of the tilt towards enterprise was the unveiling of a new “credit adjudication service” which will have the legal clout to intervene if companies are seen to have been unfairly denied funding.
The chancellor said the controversial 50 per cent tax on banks’ bonus pools yielded £2bn, four times the amount originally expected as investment banks chose to splash out on talented employees regardless.
The money will make up the meat of a £2.5bn growth package for smaller companies, which will extend the flexible tax payment scheme for enterprises and cut business rates for 500,000 fledgling firms.
Darling also said the banking sector had so far paid £8bn in fees in return for £1.2 trillion of state support pumped into the system in 2008.
Having taken a harsh stance on the City throughout the address, the keeper of Number 11’s keys tried to soften his tone with a throwaway line. He said: “There can be no return to ‘business as usual’ for banks. But a healthy, strong financial services industry is central to our long-term prosperity.”
The Square Mile was unimpressed. Angela Knight of the British Bankers’ Association derided the package as “a Budget with its eye on the ballot box”.
“As the chancellor knows, the UK’s banking sector still generates a sizeable proportion of what he has to spend,” she said, adding the financial services industry already pays £24bn in taxes annually and lends to small businesses in 85 per cent of cases.
Shares in UK-based banks shrugged off the Budget to rally, suggesting traders had been expecting harsher measures. Leading the risers were state-owned RBS, which gained one per cent to 44.5p, and Lloyds which rose 1.9 per cent to 64.2p.