Osborne v banks
George Osborne today called for bank bonuses to be limited to only those working in high street banking and for more smaller banks to come onto the high street.
The shadow chancellor used a speech in Canary Wharf to call for the "politics of commonsense" with "cash for the economy, not cash for bonuses".
He demanded the bank bonuses for high street banks to be limited - even for investment arms - so bonuses would instead come in the form of shares except for "small cash pay-outs to the staff in branches and the call centres.
"We cannot wait for the promised land of a new responsible bonus culture which looks more remote than ever."
Mr Osborne claimed bonus cash should instead be used for lending.
"The banks say there are lending, but the anecdotal evidence suggests there is credit rationing," he said.
"There is all the more reason to focus on here and now on getting more credit out there."
He also hit out at the government's plans to aid the economy, consumers and businesses.
He called the Mortgage Rescue Scheme an "unreported scandal" and a "near total failure" only helping "just 15 families instead of the 6,000 promised".
"Credit is still too tight because the state owned banks are still on life support, capital is still too scarce, and there isn't enough competition in our banking system," he said.
"The banks are making billions in subsidized profits. But instead of using these profits to lend more and get credit flowing again, the banks are threatening to pay out billions in cash bonuses instead. If this happens it will make the credit crunch worse."
The shadow chancellor called for a greater number of smaller banks to break the oligopoly on the high street.
"We need more smaller banks, competing with the bigger banks to serve families and businesses in a responsible way.
"That will encourage more lending and bring down margins throughout the industry."
Mr Osborne called for a Competition Commission investigation in high street banking after high levels of mergers over the last year and, "more immediately, to get going with new licences to new banks".
There were also muted calls to riskier investment banks to be cut free from high street banks - as suggested last week by Bank of England governor Mervyn King.
"I thought it was extraordinary that Alistair Darling dismissed what Mervyn King suggest," he said, claiming there was "no harmony" between them.
The riskier end of investment banking does not sit easily deposit taking," he said
"We have not ruled out domestic action" but instead he called for "international co-operation over the coming years".
He demanded "credit and confidence".
Chancellor Alistair Darling last week in the same Reuters venue hit out at Conservative plans for threatening the UK economy with a jolt of cuts.
However, Mr Osborne stated dealing the deficit was a greater problem.
"It is the soaring national debt that sits like a vulture poised to swoop on a sustainable British recovery," he said, adding failing to deal with the problem would lead to higher interest rates that "would choke off the recovery and lead to soaring unemployment".
Liberal Democrat Treasury spokesman Vince Cable accused the Tories of being "deeply ambivalent" on the fundamental question of what we do about the future of the banking system.
"They have not given full backing to Mervyn King's proposals on splitting up the banks and these bonus proposals are short term, stop gap solutions designed to stem public anger but which fail to get to the heart of the problem," he said.
"The bonus pool in the banking system derives from the fact that the banks are making profits on the back of taxpayer guarantee. Until a properly regulated structure can be established, banks should be paying the taxpayer a premium for this guarantee."
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