King tells the unions cuts are only option

MERVYN King launched a broadside against bankers’ bonuses yesterday, telling unions they were right to be angry at the industry – but he warned there was no alternative to swingeing spending cuts to reduce the deficit.

Speaking at the Trades Union Congress annual conference in Manchester, the Bank of England governor said the economic crisis rested squarely on the shoulders of the banking industry.

He said: “Remuneration, especially the structure of financial sector bonuses, encouraged excessive risk-taking... your members, and indeed the businesses which employ them, are entitled to be angry.”

However, King – who will soon have overall responsibility for bank regulation – said that clamping down on bonuses was not the answer, because “if banks want to pay this money to those individuals they will find a way to do it”.

The governor also fired a warning shot across the bow of the unions, insisting that savage spending cuts and public sector job losses were essential if Britain is to reduce its “unsustainable” deficit.

He said: “It is vital for any government to set out and commit to a clear and credible plan for reducing the deficit. The current plan is to reduce the deficit steadily over five years – a more gradual fiscal tightening than in some other countries. As a result of a failure to put such a plan in place sooner, some euro-area countries have found... a much more rapid adjustment being forced upon them.”

Unions reacted angrily to King’s comments. Paul Kenny, GMB general secretary, said: “His analysis of the excesses of the banking system reminds me of Jessie James warning people in the Wild West about the dangers of train robberies.”