Politics can be so unpredictable that a week seems a long time, but there is one prediction that can be made with certainty: a car crash between bankers and politicians just in time for Christmas. The fall out could be so severe that it could lead to the demise of London as a financial services capital.
Next month, after the Comprehensive Spending Review, much of Britain will be reeling as the fiscal axes falls: public workers, hit by a pay freeze and pension clampdown, will be hoping just to keep their jobs. Quangos will be culled by the dozen. Whole government programmes closed down. Those on benefits worried sick. Unions on the war path, stirring up fury at the government.
And in the middle of all this will come the Christmas bonus season, with bankers – widely blamed for all the problems in the first place, and bailed out at taxpayers’ expense – awarding themselves riches that others can barely dream of. We will certainly not all be in this together.
There is only one political response to this, and it is as certain as night follows day: the government, to satisfy the public baying for blood, will launch a massive punitive clamp down on financial services.
The Chancellor, George Osborne, can see the car crash clearly ahead, but believes there is little he can do. He has already threatened a new bonus tax, while Treasury officials are bracing themselves for prolonged crisis management. Already many of the banks are rewriting their long term business plans to move future activity away from London, and this will only accelerate. Osborne – who understands the importance of banking – doesn’t want to be the Chancellor that oversees the demise of London as a financial services capital, but if that’s the price of rescuing the economy, then so be it. Politically, he has no choice.
Boris Johnson has urged banks to pre-empt the public mood by giving massive donations to charities, making it easier for him to defend them. Marcus Agius, the chairman of Barclays, and Richard Lambert, the director-general of the CBI, have both urged banks to restrain themselves to drain the poison from public debate.
We clearly need a new settlement between politicians and bankers, allowing them to leave in peace again. But that depends on the banks, who have been in deep discussion, but without a hint of agreement. Banking is so competitive that it’s easier to herd cats than get them to act together.
There is also a streak of crisis denial in the City, with bankers, arguing they deserve the bonuses, planning to cock a snook at the ungrateful public. But whether the bonuses are right or wrong is immaterial – this is raw politics, where public mood trumps fine arguments. The bankers are acting like a motorist protesting their innocence to a road rage driver with a large baseball bat. Banks should pick battles they can win, and it is in their long term interest they don’t pick this one.
What is needed is large public gestures – Barclays sponsoring the Mayor’s bike hire scheme has done more for its image than any announcement. We need high profile bonus kings to put the long term interest of the industry first, and defer their rewards.
The Chancellor too can do something – he should start selling the public shares in the banks. The Treasury stake in Lloyds bank, worth about £21bn, is now greater than the bailout, meaning that the Chancellor can reassure the public they have made money on the whole debacle (the share in RBS is not quite there yet). In the US, selling bank shares to repay the public dramatically altered the politics of banking. It is time to start doing the same here.
Anthony Browne is policy director for the Mayor of London, Boris Johnson.