Joe Storey is an A-Level student who is researching Margaret Thatcher’s influence on the current Conservative party’s economic policies.
I fear a campaign to Save the Bankers will not be as popular or endearing as a campaign to save the Pandas or other endangered species. Despite bankers lacking the cuddly demeanour of the latter, they too are becoming an endangered species: the UK’s 4 largest banks (RBS, HSBC, Lloyds and Barclays) have made 190,000 redundancies since the financial crisis, a reduction of 24 per cent since 2008.
However, unlike the pandas, they can’t catch a break. Rather than seeing a national whip-round to prolong their existence, bankers are shamed at every opportunity and portrayed as national villains. “Jail the Bankers” the Occupy Movement roars, as populist politicians assemble to form knee-jerk, punitive legislation to appease the frothing Occupiers.
Too often, anger is not directed at those responsible for the crisis. It is astounding that the role that loose monetary policy, trade imbalances and Fannie Mae and Freddie Mac has been largely neglected by many commentators, who instead call for more government to cure a crisis in part catalysed by government actions. “Banker” has become a pejorative term for all those who work in the City. Ironically, those demonising bankers are, quite rightly, likely to be outraged if immigrants or the vulnerable are demonised due to the actions of a minority, as is the case in the financial services.
If the Left’s portrayal of bankers is correct, Canary Wharf consists of bonus-bonanzas for forex-fiddling, Libor-rigging bankers who rob the UK of everything that is good and holy. Banker-bashing remains one of the UK’s favourite pastimes, but those partaking in the bashing appear to ignore the financial sector’s contribution to the UK. Yes, I said it – those dastardly bankers actually contribute something to our society. Indeed, banks and their employees contributed £65 billion in tax revenue last year, the equivalent to two thirds of the NHS budget or 11.7 per cent of all tax revenue.
But banks do not only contribute to the Treasury – they provide a salary for 3.8 per cent of employees in the UK. This money in turn supports other industries and acts as a multiplier effect as it creates jobs elsewhere. The UK financial sector also runs a trade surplus of £6.5 billion, vital for a country operating a trade deficit of £9.8 billion on goods. 26 financial firms alone spend £5 billion on capital expenditure, representing 4.1 per cent of total business capital expenditure and providing the UK with much needed investment. The House of Common’s library has calculated that using the measure of Gross Value Added (GVA), the financial sector accounted for 9.4 per cent of the UK’s total economic activity.
Despite this vast contribution, the public remains outraged with the financial sector. Seven years on, bankers are still judged to be responsible for society’s ills. More shockingly, other parties have emerged from the financial crisis unscathed. Politicians, bureaucrats and consumers all played a hand in the crisis, yet portray themselves as victims. Citibank did not force consumers to live beyond their means and accumulate huge levels of household debt to the point whereby someone is declared insolvent every five inutes, nor did Goldman Sachs force the incumbent government to amass an unprecedented level of sovereign debt, or implement substandard legislation which failed to stop the worst excesses.
Labour have proposed limiting bankers’ bonuses to 100 per cent of their salaries, although it’s clear from their rhetoric that some members of the party feel that this level is too high. Bizarrely, we now have a situation in which there is pressure to eliminate bonuses completely. Proponents of a cap on bonuses are advocating a misjudged policy: if bonuses are capped or eliminated, guaranteed pay will become less dependent on performance. If bankers fail to deliver, they are not awarded bonuses and only receive their base salary. If bonuses are essentially outlawed, base salaries will rise which means take-home pay is less influenced by performance.
It is even more bizarre that Labour partake in banker-bashing given that the bankers’ bonuses will fund most of their extravagances. The party has announced that a tax on bankers’ bonuses will finance deficit reduction, revitalising the high street, a house-building programme, regional investment and a youth jobs scheme.
Post-crisis, it is now vital to devise a regulatory system which provides transparency and is not burdensome. It is imperative regulators do not impose iniquitous legislation made in haste on the financial sector, the burden of which disproportionately lands on those at the very bottom. Like it or not, banks are crucial to society – their contribution is irreplaceable. It is vital regulation allows the financial sector to prosper, whilst wrongdoers are held to account. Those that work in the City are ambitious and contribute invaluable amounts to society as a whole. Rather than being shunned as pariahs and being depicted as selfish Gordon Gekkos, the financial sector should be championed and allowed to thrive – at the end of the day, its success will benefit us all.