This does not deal withn the key issues, which await the report of the IBC, but it does offer some political respite for the government. This respite may be short. Unfortunately the emotion understandably driving public re-action to all things banking is obscuring three things. The first is that the structure is wrong and it is wrong to delay reform for so long.
The second is that while bonuses are provocative to the people who have lost their jobs who ask, rightly, how and why one hundred people in RBS, owned by the taxpayer, are paid £1million, 50% of this,£50 million, comes back to the Treasury in income tax. If we add vat at 20% on the spending it rises to £70 million. Provided these funds stay in the U.K. and are taxed at source, which could be made a requirement, the taxpayer does quite well. This rationale will, however, do nothing to dim the public outrage and anger. Bankers need to know that, through their own actions, their calling has become at least political and at worst offensive.
The third point is, in terms of economic recovery, the most important. Much has been made of the need to lend to SMEs, although this must conform with the strictures of prudent banking. SMEs must take on board that risk capital and cash funding are not the same and and the products of different institutions. Only the latter falls within banking as discussed in these terms. Here is a problem. In recent years all 75% of all bank lending has been on property.
As a consequence there are few, very few, staff who know anything about business or enough to make sound and sensible judgements. Thus the business model of the banks is unfit for the purpose of driving economic recovery and they have got to put this right pronto. It is especially bad for forging an export led manufacturing recovery, which is critical to future prosperity.
At present all the best brains in the banks are working in the so called investment departments, trading and betting as proprietors in securities of little value outside the game and which few of them, if any, fully understand. Unless we want an economic recovery driven by betting shops and casinos, it is clear that the banks are misusing the talent within their ranks. Re-structuring needs to ensure that such a business model, on so dominant a scale, is both too risky and too expensive for those who use it. There are better ways.