---

Youth Unemployment and Bank Bonuses

There are many quotations from Conservative Members calling for less regulation during the previous Government's period in office, but I refer to the Treasury Committee evidence from Mr Robert Jenkins, a former Credit Suisse trader who is now a member of the Bank of England's Financial Policy Committee. He recently made a speech in which he said:"““The truth is that banks can strengthen their balance sheets without harming the economy. They can do so by cutting bonuses, by curtailing intra-financial risk-taking and by raising term debt and equity.””" As the hon. Member for Bury St Edmunds said, last week Mr Jenkins told the Select Committee that if the banks reduced the bonus pot by £1 billion, that would make available £20 billion more for small businesses. This weekend, the banks hit back at that estimate. The Sunday Times was briefed, by an industry insider who clearly has a thing or two to learn about rapid rebuttal, that the real figure if bonuses were cut would not be £20 billion but only £13.5 billion. That argument is based on whether we apply the capital and regulatory rules that exist at the moment or those that may come in future. But whether the figure is £13.5 billion in future or £20 billion at the moment, the argument is clear: reward is an issue not only about fairness, but about the function that we want the banks to have in the economy. Of course it is galling for a nurse on a pay freeze to be paying for a crisis that they did not cause and then to see a seven-figure bonus, but it is more than galling—the truth is that we have been presented with a false choice between restoring the capital position of banks and supporting lending in the economy. There is not an automatic trade-off between levels of safety and levels of funding once we take into account issues of reward at the top. Put simply, less money in excessive pay at the top would make more available for the lending we need to create jobs. That is why youth unemployment and bank bonuses are linked. I have one final thing to say. In the coming days, we are going to hear a lot about what top bankers are entitled to contractually; no doubt that argument will be wielded by Ministers. However, contracts are not the only thing that matters. Context matters too, and the context is the greatest squeeze on family living standards since the war. That should be taken into account by the bankers themselves as we decide on restraint on bonuses. The banking industry is hugely important to this country, but its relationship with the public has been broken. It is time to repair that relationship, and there is no better place to start doing that than in striking a better balance between reward at the top and the job that we want the banks to do—to lend in the real economy.