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There are various reports today suggesting that bankers and traders at banks part-owned by the Government are set to be given bonuses this year, with the Telegraph suggesting that Lloyds TSB – which has been bailed out to the tune of £17 billion – is "reportedly ready to give hundreds of millions of pounds to top executives and more junior staff."

Meanwhile RBS – now almost 70% government-owned – is also "reportedly paying six-figure bonuses to staff".

Shadow Chancellor George Osborne has been quick to condemn such a move:

“It would be an insult to struggling taxpayers across the country if the Government allowed banks that we part-own to pay out big cash bonuses. As I said at the Conservative Conference last autumn, to increase taxes on people earning £20,000 to pay the bonuses of someone earning £2 million is totally unacceptable.”

Business Secretary Lord Mandelson has waded in to say that banks offering "exorbitant" bonuses risk alienating the public.

Yet restricting the use of what is effectively taxpayers’ money for bonuses and pay incentives is by no means a universally-held view.

As Conservative MP Mark Field (who represents the City of London) argued on CentreRight in October:

"Incentives at banks for those financiers whose success is crucial if taxpayers are to be promptly reimbursed for this bailout are to be abolished… A more rational approach towards banking bonuses would be for government to attempt to claw back some of the over-inflated bonus payments of past years (some of which is deferred remuneration yet to vest)."

And making a similar point was an FT editorial yesterday which said that whilst President Obama’s curbs on pay for firms seeking taxpayer assistance was a "political necessity", it had "risks and drawbacks":

"If it discourages firms from seeking timely help, it may backfire. If the curbs are kept in place too long, retaining and recruiting people with the skills and the prodigious appetite for work that economic recovery will require may start to become difficult."

Jonathan Isaby

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