The background

Ed Miliband scented blood at today’s session of prime minister’s questions on the subject of City bonuses.

The 81 per cent taxpayer-owned investment bank RBS has apparently been lobbying sections of the government to be allowed to pay bonuses to its highest earners of up to twice their annual salary.

Tough new EU rules limit bonuses to 100 per cent of salary, but banks can increase the cap to 200 per cent if shareholders agree. Since the government is the main shareholder in RBS, that puts ministers in a difficult position.

The government is taking the EU to court over the bonus cap, saying it will simply drive up salaries and encourage banks to try to get around the rules in order to hold on to their big hitters.

So it would be logical for David Cameron to agree to RBS’s request. Of course, logical isn’t the same as politically expedient, and Labour is clearly expecting public outrage. What does the prime minister intend to do?

The claim

“If there are any proposals to increase the overall pay, that is pay and bonus, bill at RBS, at the investment bank, any proposals for that, we will veto it.”
David Cameron, 15 January 2014

This carefully-worded pledge is quite obviously not a commitment to tell RBS to drop its plan to increase bonuses.

It suggests that the government would only act if the bank’s total pay bill was set to rise.

Of course the chances of that happening were virtually nil anyway, as RBS is shedding significant number of employees at the moment.

Some 40,000 jobs have gone since RBS was bailed out in 2008, and RBS said this week that it would cut 3,500 more jobs from its investment bank.

Of course if the pool of workers in the investment division shrinks, the average payout per individual might well increase while the overall pay bill stays the same.

Mr Cameron did say today that a current £2,000 cap on cash bonuses at RBS will continue next year, but that appears to leave the bank in the clear to dole out benefits in the form of shares instead of cash.

The claim

“We will continue with our plans for RBS that have seen bonuses come down by 85 per cent, that have seen the bonus pool at one third of the level it was under Labour.”
David Cameron, 15 January 2014

This was slightly garbled, but we think Mr Cameron was saying that bonuses have come down by 85 per cent in the City as a whole, and there are figures that back him up on this.

The Centre for Economics and Business Research (CEBR) was the go-to source of statistics on current and forecasted City bonuses, although the think-tank told us today that it is going to stop collecting the figures in the future.

In 2012 CEBR put out these numbers. Comparing the high watermark of 2008 (£11.6bn) with CEBR’s estimate for 2013 (£1.6bn) does indeed give us a drop of 85 per cent.

And yes, the total bonus pool has fallen by around two thirds since 2009, the last full year Labour were in power.

But this is the total payout shared between all workers, and of course there have been job losses across the banking sector, so does the same point we made above apply?

Apparently not – CEBR have done the sums and say the average bonus payout per person still shrinks dramatically, from £33,000 a head to £6,400.

This does suggest that bonuses have fallen significantly since the pre-crash heyday, although whether government policies have anything to do with this trend is highly debatable.

There are other statistics on bankers’ bonuses, but they measure slightly different things.

Whereas CEBR takes in the wholesale financial services industry in the whole of London (the City and Canary Wharf), the Office for National Statistics (ONS) looks at bonuses collected by workers in the financial services and insurance sectors across the UK.

ONS stats suggest the total bonus pot was £13.3bn in 2012/13, almost exactly the same as the year before and down from a high of £19bn in 2007/08.

Obviously this paints a slightly different picture from the CEBR numbers.

Now we are talking about bonuses slumping by 30 per cent, not 85 per cent, but we are also comparing apples and oranges.

Finally, the European Banking Authority publishes some revealing stats on “high earners” across the EU – that means bank employees taking home at least 1 million euros a year, or about £830,000 at time of writing. (See graphic below)

It probably shouldn’t come as a shock, but the EBA numbers confirm just how much of a magnet for big earners the City is.

In 2012 there were 2,714 million-euro babies working in UK banking. Germany had the next highest number: a paltry 212 individuals.

So a full 77 per cent of the people likely to be affected by the EU bonus cap are working in Britain.

The figures show that the average high earner got a bonus worth 3.7 times their salary in 2012. That’s not quite the highest ratio in the EU (in France it was 3.75 to one), but it’s only just in second place.

In fairness, EBA figures for 2010 show that the average bonus was a whopping 611 per cent of salary. That has fallen, as has the average remuneration per person, but we only have three years of figures to play with so it’s difficult to claim there are any meaningful trends here.