Ed Miliband’s task is to point out where the blame really lies for unfairness in the system: the field is there for Labour’s taking
The Hester bonus retreat marks a seismic political moment, a point of no return. How long it has taken, how slow Westminster has been to respond to public outrage since the crash – but Labour has seized the moment.
Let’s remember how this all began with Labour’s caution. Gordon Brown and Alistair Darling rightly poured £65bn into saving RBS and Lloyds, to stop a domino collapse of the entire banking system. But for fear of being branded red, instead of nationalising them, they created a phoney arms-length quango – UKFI – to manage the state’s “investments”, allowing RBS commercial, not civil service, pay rates. RBS’s share price has tanked, because the bank remains bust, yet 350 RBS people took more than £1m each in pay last year.
The same taxpayers’ money that kept the RBS and Lloyds ghost ships afloat saved every other bank from sinking, since they were all fatally roped together. Yet that bailout was a small rum ration compared with the £275bn quantitative easing pumped by the Bank of England into the hold of all the banks, with more to follow soon, and never to emerge as lending to cash-starved business. Even heftier sums were pumped into US banks from the Federal Reserve, and recently £407bn to European Union banks from the European Central Bank. The west’s banks are paralysing the world’s economy, yet £4.2bn in bonuses will be paid out in the City this year.
Labour’s call for a tax on bank bonuses gains real traction as boardroom kleptocracy finally breaks through the political sound barrier. Despite poll after poll showing disgust at top pay, the issue has been ignored at Westminster and was invisible at the last election. Hester’s failure to respond in time to public outrage has lit the blue touch-paper. Uncharacteristically, David Cameron missed the public mood, so he looks both weak and in hock to a City that bankrolls his party. Each new bonus announcement will skewer him again and again – one RBS trader gets £4m and on Friday, Barclays’ Bob Diamond will swipe £10m: no Cameron nudging is likely to shift his sod-you-all attitude.
Hester has handed Labour the tin-opener to the whole can of worms over boardroom pay. Research from Professor Karel Williams at Manchester University’s Cresc shows how far soaring executive pay is unrelated to performance, but how closely related it is to the tiny pool of people sitting on boards, similar earners rubber-stamping one another’s ever-rising pay. There is, Williams says, “a very weak link between pay and performance”. Most employees know that performance-related pay is largely a chimera: gamed by managers, resented by staff, it corrodes into custom and practice. Let this end the bonus and incentives fallacy in every sphere.
Tomorrow, the deadline for self-assessment tax filing, 20,000 HMRC staff are striking in call centres, protesting at the outsourcing of their jobs in trial areas, paying private employees £3,300 less. Here is a timely reminder that the extreme dysfunctions of pay need a remedy at both ends – a living wage and just rewards, with no more squeezing the value out of ordinary decent jobs to suck the money upwards to the top few per cent, trickling up not trickle-down.
The Hester moment is Labour’s chance to leap ahead and make unfairness the central charge against this government. Look at the Sunday Times YouGov poll: 62% say taxes on the wealthiest should be increased, while 66% support a mansion tax on property worth more than £2m.
The High Pay Centre’s ICM poll this week finds two-thirds of voters support the plan, endorsed by Labour, for an employee on every remuneration committee. Only 7% say pay above £1m is acceptable, yet average FTSE executive pay is £4.2m. Deborah Hargreaves, head of the commission, finds the public far angrier than politicians have yet understood. “They are outraged when they see how much wealth goes under-taxed. On a radio phone-in I did at the weekend, callers were furious at Dave Hartnett, the head of HMRC’s attack on people evading VAT by paying cash for services, when he had let Vodafone and Goldman Sachs off billions.”
She sees a real danger in people refusing to pay tax when they see such blatant evasion and avoidance. The public, she says, wants a super-tax on the wealthiest. A one-off austerity tax on windfall-accumulated extreme wealth at a time of national crisis would be popular. “People are vehement and vituperative,” she says. “I’d be hit by a mansion tax, but I’d think it right and fair.”
Restoring justice to the tax system should be an easy call for Labour. In power, Labour got it wrong on nationalising the bust banks: similarly Ed Balls and Ed Miliband can admit they left holes in the tax system that let the rich off while the PAYE hard-sloggers have no choice but to pay up. Start with taxing all incomes at the same rate – a worker on an average £26,000 is taxed £5,981, but someone earning the same in dividends pays zero. Those on the 50% tax band only pay 36% on their dividends. Equalise capital gains and income tax rates: private-equity magnates make money out of redefining their income as gain. End the loophole that lets the wealthy escape stamp duty by registering properties in offshore companies. A top property tax is long overdue after serial housing bubbles have left mountains of untaxed wealth.
Unfairness in tax is something the public well understands. Making all income tax returns public documents would give everyone some insight into the scams of those with lifestyles way above the sums declared for tax. Look again at the profound injustice in the City’s ill-gotten gains, where fund managers skim a third off the value of everyone’s pensions, and often far more.
Turn the question towards the unfairness in how the pain of this crisis is shared, and Labour starts to win the argument. Undeserved bonuses are only part of the story. How George Osborne and David Cameron have deliberately stacked the cuts against those on lowest to middle incomes springs from the same mindset. With £18bn taken from the very poorest on benefits and with the poorest boroughs hit hardest while leafy shires are almost untouched, the story is the same. People see it, feel it and are angry. Cameron warps that wrath towards those on benefits. Miliband’s task is to point to where the blame really lies. Labour promises new policy fireworks at next week’s debate, and the field is theirs for the taking.
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