Let the RBS directors resign

The Royal Bank of Scotland (RBS) directors have tried to justify paying their investment bankers a massive £1.5 billion in bonuses with a number of arguments:

• In order to remain competitive and retain the most talented banking professionals, they must pay the going rates for their industry.
• They say their legal advisers have told them they’d would have to resign, if they failed to pay the bonuses, as they’d be in breach of contract.
• The RBS investment banking division has made around £6 billion profit this year, for which £1.5 billion is a fair bonus total.

So let’s look at these claims:

• The only people who seem to think the current banking industry remuneration levels are fair, are the bankers. This is an opportunity for the rest of the world to break this ridiculous, self-serving and self-perpetuating cycle. The argument that RBS would lose their best people fails on two counts: Firstly, if they’re so good, how did RBS and most other financial institutions get the world into its current monumental fiscal mess? Secondly, until someone makes a stand on this issue, banks will always be able to use this argument and maintain artificially inflated income packages.
• If the directors would be in breach of contract, surely the government, as our representatives – currently 70% of RBS is publicly owned – are responsible for ensuring that any contracts drawn up support the nation’s best interests, rather than those of a few excessively over-rewarded individuals. Also, if they really want to resign, let them; let’s create an opportunity for some ‘new blood’ to reach the highest levels of their profession, whilst retaining a realistic view of their earnings potential.
• The £6 billion profit figure pales into insignificance, compared to the £25 billion pounds of our money the government used to refinance RBS. The thousands of small and medium sized businesses RBS and its fellow organizations refuse to lend money to could all turn a profit if they were able to enjoy the same type of luxury (also see “The recession isn’t ending“).

Executive bonuses, in banking and other sectors, should be set at realistic levels and dependent on real success. High achieving professionals should be rewarded well, in order to provide genuine incentives and retain the best people. However, simple measures, such as deferring bonuses for three years (already a common practice in some industries) and paying some rewards in the form of share options, could reduce risk taking significantly; it could also encourage behaviour more supportive of an organization’s long term future.

Alistair Darling must defend the nation’s best interests in this matter and, if necessary, let the RBS directors walk. This could send out a strong message to the senior executives of other institutions with or without significant public investment. Perhaps other nations might take note too?

The recession isn’t ending

The government would have us believe the recession is ending, but we don’t see much evidence of it. At this time of year, when many businesses should be shipping more goods than usual, trade and industrial packaging suppliers expect to enjoy their busiest quarter. As a result, the packaging industry is a good barometer of a large cross section of businesses in general. Our direct contacts within the packaging industry inform us that they, their suppliers and competitors are in decline, with many going out of business altogether.

Banks are still paying big bonuses but either not lending, or lending at inflated rates; 6.5% is common, when the base rate is 0.5% currently. SMEs (Small and Medium-sized Enterprises), including what’s left of Britain’s manufacturing and engineering industries are going to the wall due to poor cash flow and an inability to borrow.

So why won’t the present government bring pressure to bear on the banks currently in public ownership? If they were to give business a much needed helping hand, but fail to win next year’s general election, the incoming government might well take the credit. How much does this sort of reasoning feature in the actions of a weak, outgoing government? If it does happen, or ever has happened, it could lead to a highly undesirable form of ’scorched earth policy’. The problem is, how do we prevent such a thing?

Also see “Let the RBS directors resign“.

Is Great Britain plc heading for bankruptcy?

The government tells us we are coming out of recession, but our experience suggests that may not be true:

The packaging industry, a good barometer of trade in general, appears to be struggling. Our packaging industry insider informs us that companies are either going bankrupt, or reporting unseasonably low sales for what should be their busiest period. The main problems seem to be:

• Reduction in orders
• Slow payment for goods supplied
• Reduced profits due to squeezed margins
• Rising utility costs and business rates

It might be easier to weather the storm with the aid of short term financing, but the banks either won’t lend, or will only do so at highly inflated rates.

The government must exercise some control over the banks WE own and force them to lend at sensible rates.

Oil prices are low, but forecourt fuel prices are rising. This has a huge effect on business and our government must address the issue.

A more effective unemployment solution?

Unemployment benefit costs the taxpayer a fortune and can lead to the infamous ‘unemployment trap’ for unskilled and/or low paid jobs.

Surely, if the government subsidised employers, who take on long term unemployed, it could cost less than paying benefits, improve British business and get people back to work.

The employer can pay the minimum wage, topped up by the government subsidy, making a decent income. This allows businesses to employ more people and still be competitive. At the same time, less taxpayers money is spent on unemployment benefits and the economy gets a boost.

Fair import levies

How about an import levy on all products manufactured by companies, which don’t pay the minimum wage and don’t meet basic European health & safety requirements etc. This could reduce unfair overseas competition, encourage good overseas working practices and make British / European manufacturing more competitive.