George Eustice: Bailed-out banks are a liability

There are few things more frustrating for a political leader than to be caught in the middle of a political storm and held responsible for decisions over which they have limited control.

George Eustice: Bailed-out banks are a liability
George Eustice: Bailed-out banks are a liability

The last Labour government took the decision to bail out banks such as RBS because the risk of letting them fail was too great. But there was an overwhelming cross-party consensus that the banks should not become like old-style nationalised industries.

The taxpayer was only providing bridging support and would not be a shareholder for a minute more than required. Instead, the banks would be run at arm's length from government and continue, to all intents and purposes, to compete internationally in the world of finance and to be driven by the motive of profit.

Such an arrangement creates a problem for anyone managing comms around the contentious issue of bank bonuses. Once government decides to have an autonomous board of directors, it has to live with the fact that it is ultimately exposing itself to the judgement of bean counters, who might understand finance but have no understanding of the rough and tumble world of the media and who will lack the agility that is hardwired into politics.

The truth is that the huge salaries and bonuses paid out in the City are not really driven by the market but by market failure. Senior executives are not intrinsically worth what they are paid. It is simply that a high pay culture has developed over the years, fuelled by headhunters on commission.

But breaking that culture has proved easier said than done, partly because the banking industry has been slow to accept that it is a major part of the problem and partly because, once established, cultural norms are difficult to shift. As a result, the entire banking industry continues to work to outdated notions of its own value and this has created an inflated baseline for senior pay.

Advisers at Number 10 will no doubt be working to identify other bank bonus risks, but while the principle of autonomy for bailed out banks remains, the only real answer is to get shot of them as soon as possible.

George Eustice is Conservative MP for Camborne and Redruth and a former press secretary to David Cameron.

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