Scottish Independence: What should we really be afraid of? Economy II | Autonomy Scotland

Scottish Independence: What should we really be afraid of? Economy II

In the previous post we looked at what happened during the financial crash and how the UK has faired since the crash.  Unfortunately, it seems that despite recovering to its pre-2008 peak, the economy is in a similarly risky position to the one it was in just before the crash as has grown in the wrong way, being driven by the housing market and record personal debt.  So I plan to look at the UKs response by asking how did we get back in this position?

As mentioned before, the blame for the 2007 financial crash was placed on global unscrupulous banking practises and a lack of regulation and scrutiny at almost every level.  So how has the UK tackled these problems in the financial sector? Well, after bailing out the banks to the tune of £1.2 trillion, which the government expects to see most of repaid, new regulatory bodies were set up, UK banks were to be hit with a levy on their annual balance sheets and in order to encourage top bankers not to be greedy in the short term the EU imposed restrictions on bankers’ bonuses.

    • RBS (bailed out, £8bn loss):£567m in bonuses to staff. Wants to pay bonuses of up to 200% of salary for execs
    • HSBC: Chief Exec salary  increased by £1.2m, given £1.7m in shares and £1.6m in expenses
    • Lloyds TSB (bailed out): Chief Exec pay £1.1m + £900,000 shares + incentive plan  £7.8m in 2014
    • Barclays: Chief Exec total pay may be £6.3m in 2014
    • Coop (£3m loss and 5000 employees to be laid off):Chief Exec £3.5m+ and paying hundreds of other staff £1m+

Despite this,  worldwide this year bankers bonuses increased by 29%, but bankers in London saw increases of nearly 50%.  This doesn’t seem to provide much impetus for change.  That said, perhaps they genuinely deserved such disproportionate bonuses if the banks have changed and are doing better than ever.  After all, the UK government argues that the high pay and bonuses serve to retain the best bankers in the world.  Sadly, while executives’ pay has continued to grow, the performance of many of the UK banks is actually considered poor on a wide range of metrics.  This sounds more like extra pay for the worst bankers.

Bah_humbug

David Cameron has responded to this rather unsavoury situation by saying he will fight the EU cap on bonuses and the UK Treasury has launched a legal challenge to exempt the largest financial sector in Europe from these caps. They argue that banks would try to get around this by increasing the basic pay for top bankers so that their overall yearly earnings are the same or higher.  While such a deliberate attempt to circumvent the regulation should be deemed unethical and counterproductive, the prediction has been proven correct.  Indeed, this year bankers have been receiving increases in yearly salaries and expenses, along with large bonuses, before the new caps are introduced.

Another reason not to trust bankers – The Royal Mail Sell Off

  • Before the Royal Mail’s £3.3bn selloff, 16 priority investors were offered extra-large stakes in the business
  • The UK government made a “gentlemans agreement” with these investors that if they bought the shares they would keep them long term to secure stability of the Royal Mail
  • These investors refused to buy shares for more than 330p, despite warnings it was worth more
  • Despite this “agreement” within weeks the 20 biggest investors had made as much as £330m by selling almost half of their shares, which ended up in more risky hedge funds
  • The public were only allowed to buy a maximum of £750 worth of shares in the formerly publicly owned Royal Mail

Despite the PM’s position to oppose the regulations on these grounds, it seems that it was expected that the UK would ensure this did not happen. One of the architects of the bonus cap has actually called for the EU to take the UK government to court for allowing the banks to do this as it is against the spirit of the legislation.  So it seems that the UK was expected to take action to prevent their institutions from deliberately abusing the system.  But they didn’t.

An argument could be made that the UK had no choice but to bail out the banks and that the government has no way to prevent them from continuing to award excessive bonuses for poor business performance.  While this excuse that the government has no control over the financial sector should stick in the back of people’s throats, it’s simply not true. As I mentioned in the previous article, Iceland tried a different route and it has been rewarded with much diminished personal debt, a more democratic political system and unemployment has fallen to less than 4%, though this is short of their long term goal of 2%.

But growth is still growth and the economy is, on paper at least, doing well.  So despite the frittering away of the oil, the failure to rein in banks and the large personal debt of its subjects, the UK is still one of the wealthiest nations on earth. In the next article I will look at how this wealth is distributed across the UK to ascertain if being a wealthy nation is in itself enough to make sure that all of its people are well taken care of.

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kenlaidlawautonomyscotlandDouglas J. Sutherland Recent comment authors

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Douglas J. Sutherland
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What do you expect when we have the Tories receiving large donations from the banking elite? The government in Wastemonster is corrupt and rotten to the core. They do NOT represent the population of this country but use their positions to feather their own nests. The Banks are supposed to be operating under new regulations but as far as I can see they are blatantly flaunting the rules with complete impunity while the general public are being robbed blind by the banking systems.

autonomyscotland
Admin

Spot on Douglas. The Torys seem to be actually fighting the regulation that is being brought introduced in order keep the bankers rich. The UK has some of the riches bankers on the planet and even the US Government isn’t as under the banks thumb as the UK. Scotland needs to be careful not too fall into the same trap if we get the Yes vote, as our finance sector makes up around 10% of our revenue. We’ll need to ensure there is full transparency on lobbying, expenses and, as far as possible, policy decisions to make sure the politicians… Read more »

kenlaidlaw
Guest

I’m not entirely sure what this has to do with independence, the bankers will still be horrible if a yes vote is returned. There are some important things to note here, 1) If we don’t have shares in a bank, what they do with their money is none of our business, I find it abhorrent that any company losing money pays bonuses to staff but unfortunately I’m not in charge. 2) People need to take some level of responsibility for the excessive personal borrowing. It’s not all the banks fault. 3) if you don’t like the Tory’s vote them out… Read more »

kenlaidlaw
Guest

Could I also point out that the 1.2 trillion figure is not the cost of the bailout but includes the amount of the guarantees that were put in place and have since been significantly reduced. it might be worth mentioning that the government bought 48 billion of RBS shares at £0.50 and these are now worth over £3/share. So with dividends and profit from the sale of these shares it is very likely that the UK government at some point will get a nice windfall.

autonomyscotland
Admin

Hi Ken. Firstly, thanks for taking the time to read our posts and to leave us your comments. The point of the posts in this series are simply to highlight that we live in a rather unbalanced country, where the decisions are taken, regardless of the party involved, in the interests of the wealthy elite and not the majority of people. I don’t think anyone could argue that Britain isn’t broken. We can rhyme of worse places, but why not strive for better? Scotland almost has never influenced the outcome of a UK general election, despite the notion being pushed… Read more »

kenlaidlaw
Guest

There seems to be some issues with the data as I based my comments of government figs that I can’t find again although I have found articles suggesting the break even is 51p per share for RBS, i’ll keep looking:) I’ll continue to read your blog as for one we probably agree in principal that something needs to change, we just disagree on the how and where it should come from. I’m not sure if clicking on my name takes you to my blog which is also new and not anywhere near as sleek as yours but will show you… Read more »

autonomyscotland
Admin

Hi Ken, thank you for the compliment about our site. Yours looks very to the point, which I personally like, and I’ll look forward to checking out some of your content later. I like the title too. I think the debate is between people like you and I Ken. Most people know that the UK isn’t what it claims to be and that on a lot of measures, despite it’s wealth, we rank lowly compared to our European neighbours. The big question really is, do we believe it can be fixed from inside the UK through the current democratic system,… Read more »

kenlaidlaw
Guest

Thanks for taking a look at my page, I am pretty sure my figures were taken from the government figures not from any media source. I just can’t find them again in the gov pages. We probably do see many of the same problems but view the causes as different, my view will come across as quite right wing, it isn’t but more based on an unemotional logic. I don’t believe we will have any chance in an iScotland to fix many of these problems in the short to medium term as we will be too busy trying to set… Read more »

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