Osborne calls for end to 'unacceptable' City bonuses

Monday 17th August 2009

Bonus payments should be scrapped at banks which have benefited from taxpayer support, the shadow chancellor has argued.

George Osborne appeared to toughen the Conservative party line on the City bonus system by suggesting restrictions should be imposed even when financial institutions have not directly taken government assistance.

"It is totally unacceptable for bank bonuses to be paid on the back of taxpayer guarantees," Mr Osborne told the Guardian during the weekend. "It must stop."

The shadow chancellor was speaking after recent and substantial bonus payments at Barclays bank which has not received direct government funding but has benefited from wider loans and guarantees.

"These banks need to live in the real world, where the country is in a deep recession and where the taxpayer has spent billions of pounds not just bailing out some failed banks, but also underpinning the rest of the banking system," Mr Osborne continued.

"There are hundreds of billions of pounds of guarantees in existence: guarantees provided by the taxpayer to all banks, to guarantee inter-bank lending and the like. The reason those guarantees are in place is not so the bankers can pay themselves large bonuses."

He went on: "They are in place to keep a banking system afloat during a recession, and to allow the banks to rebuild their balance sheets, so they can function again, and start lending out in a normal fashion.

"If it is the case that banks are using those guarantees and actually engaging in pretty low-risk activity and making huge profits on the back of it, and then paying huge bonuses, I think action needs to be taken."

Mr Osborne's remarks come after business secretary Lord Mandelson said so-called bumper bonuses should not be allowed to drive City risk-taking.

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