Despite being 22, right-wing, and not gay, I am a long-standing fan of the Pet Shop Boys. Consequently, whenever bankers’ bonuses are mentioned in the media, I can’t help but be reminded of a line from their song ‘Love is a Bourgeois Construct’: ‘While the bankers all get their bonuses/I’ll just get along with that I’ve got’. Which, unfortunately, rather sums up the public response to the Chancellor’s mini-Budget.
Whatever its merits as a policy, it is an obvious own goal for Kwarteng to remove the cap on bankers’ bonuses at a time when many are seeing their incomes squeezed. Labour have been having a field day. So it is worthwhile reminding the Shadow frontbench of just how well the bankers did when their party was last in power.
Derived from an EU directive, the bonus cap was brought in after the crash in 2008, as a way of discouraging the risk-taking culture in the financial sector blamed for the crisis. Yesterday, I covered New Labour’s culpability in that fiasco. Yet the impact of that regulatory light touch on the incomes of those at the top was staggering.
After 1999, increases in bankers’ bonuses accounted for two-thirds of the rise in the share of total UK pay pay going to the top 1 per cent. Overall, in the decade before 2007, the top percentile increased their share of total income by 3.4 percentage points to reach 15 per cent of total income. By contrast, it was 5.7 per cent in 1978 – when Labour governments were much keener on going after the well-off. More than half of this increase went to the top 0.1 per cent of taxpayers.
That so much of the total income gain of the top 1 per cent went to bankers is even more remarkable when you notice that they accounted for only a third of the top percentile of workers. For those interested, this journal article by Brian Bell and John Van Reenen goes into more detail on the economics.
But, from a Tory perspective, the political implication is clear. Labour may not like uncapped bonuses now, but it was the bankers who did best out of their last time in government.