Britain said on Wednesday it had struck a deal with the major banks on bonus pay and overall lending, as it seeks to curb executive excess and strengthen a fragile economic recovery.
British Chancellor of the Exchequer George Osborne said total bonuses paid to British-based staff of the four biggest banks will be lower than last year as part of the deal, brokered after weeks of talks with the -Conservative-led coalition.
The country’s top five banks — Barclays, HSBC, Lloyds Banking Group (LBG), Royal Bank of Scotland (RBS) and Santander UK — have agreed to ramp up total lending to ￡190 billion (US$305 billion), including ￡76 billion to small firms, he announced.
However, the banking agreement — dubbed Project Merlin — was swiftly followed by news that state-rescued lenders RBS and LBG have agreed to pay their chief executives a combined annual bonus of almost ￡3.5 million.
The British government owns 83 percent of RBS and 41 percent of Lloyds after the two banks were bailed out by previous Labour government at the height of the global financial crisis.
“This morning, the heads of the major British banks — Barclays, RBS, Lloyds and HSBC — reached a new settlement with the British government,” the chancellor told parliament.
“The banks will ... lend more money, especially to small business; pay more taxes; pay less bonuses; be more transparent about the bonuses they do pay; and make a greater contribution to our regional economy and society,” he said.
Total bonuses at the four banks would also be lower than last year and the banks committed to disclose the pay of their top five highest paid executives as well as their executive board members.
“This would mean Britain has the toughest and most transparent pay regime of any major financial center in the world,” Osborne told the House of Commons.
He recognized the widespread public anger at the “terrible mistakes of the banking industry” and excessive pay in the troubled sector.
“The anger will remain and we must never make the same mistakes again but Britain needs to move from retribution to recovery,” Osborne added.
The chancellor also revealed that upfront cash bonuses for RBS and LBG staff would be capped at a maximum of ￡2,000 each this year.
However, Ed Balls, finance spokesman for the Labour party, told parliament that months of negotiations with the banks had got the government “precious little.”
“From a chancellor who talked so tough in opposition and who even yesterday continued to promise much, this is a pitiful outcome and an embarrassing climbdown,” he said.
The deal came against a backdrop of mounting anger at banks’ huge payouts to their top executives in the City of London — one of the world’s top financial centers — as austerity cuts force most Britons to tighten their belts.