Set a maximum percentage of property loans by the banks

It isn’t ever quite clear, just from the newspapers, just where the delicate negotiations between the government and the banks have reached on bonuses. It looks as though there is some kind of deal emerging that would nod through outrageous bonuses in return for an agreement to lend more and better to small businesses.


Nick Clegg hinted at a distinction between the private banks, which will qualify for this deal, and the failed banks in public ownership – where bonuses will be quashed, though even that seems to be in doubt at the moment.

I agree that RBS and Lloyds are cases where the outrage is particularly intense, and rightly so, but I think we urgently need to ask the following questions – and to do so before we embrace any deal between the banks and a Lib Dem administration:

1. Will the coalition veto the £2.5m bonus which is pencilled in for Stephen Hester, boss of loss-making RBS?

2. Should we really accept an agreement with the big banks to improve their ability to lend locally, when all the evidence is that they no longer have the local infrastructure capable of doing so? Should we really agree when any blip in local lending would be just that, a blip brought on by intense and temporary political pressure?

3. In what other profession, certainly any other state-run service, will it be acceptable for people to earn inflationary six or seven figure bonuses just for doing the job they are supposed to be doing – lending to local enterprise?

The coalition agreement promises to sort out bank bonuses. Any failure to do so, just when other public employees doing more useful and important work are getting the push, will be a huge and damaging problem for us.

And it should be. Why should we tolerate, as a society, this spectacular failure by the banks to play a useful role in the enterprise economy – when 70 per cent of what passes for local lending, and has done for the past four years, is actually lending on property, fuelling the next asset bubble.

What I suggest is that any agreement with the banks on lending – if such an agreement is to mean anything – must also specify a minimum percentage of those loans which are not on property deals.  To lend more on property, they will then have to lend more to conventional small business.