WORKERS ARE entitled to be angry about bonuses for top bankers, Bank of England governor Mervyn King told the Trades Union Congress. He acknowledged that bankers and regulators had failed in their responsibilities in the financial crisis.
Mr King became only the second bank governor to appear before a TUC conference and offered a distinctly conciliatory tone.
Although he made clear his belief that the United Kingdom’s deficit must be reduced, he did not issue a view on whether this should happen largely through higher taxes, as the TUC wants, or through lower state spending, as the Conservative/Liberal Democrats’ alliance intends.
“Before the crisis, steady growth with low inflation and high employment was in our grasp. We let it slip – we, that is, in the financial sector and as policy-makers – not your members nor the many businesses and organisations around the country which employ them.
“And although the causes of the crisis may have been rooted in the financial sector, the consequences are affecting everyone, and will continue to do so for years to come,” he told the conference in Manchester.
Acknowledging public anger about top bankers’ pay, Mr King said incentives were needed in a market economy but “a market economy cannot survive on incentives alone. It must align those incentives to the common good”.
“It must command support among the vast majority who do not receive the large rewards that accrue to the successful and the lucky. And it must show a sense of fairness if its efficiency is to yield fruit.
“There was nothing fair about the financial crisis. It was caused not by problems in the real economy; it came out of the financial sector.
“But it was the real economy that suffered and the banks that were bailed out,” he said.
Trade unionists and businesses elsewhere in the economy are “entitled to be angry”, he said. “But however legitimate, anger will not produce change unless its energy is harnessed to a cool analysis of what happened and why,” he declared.
He acknowledged that there was disagreement about how quickly the UK’s deficit should be reduced and the means to bring that about: whether it be higher taxation or lower state spending.
“Although a large budget deficit is inevitable for a period after a crisis, it is also clearly unsustainable – our national debt, even relative to GDP, is rising sharply and will continue to do so for several years.
“It is vital for any government to set out and commit to a clear and credible plan for reducing the deficit,” he said, adding: “Vague promises would not have been enough. Market reaction to rising sovereign debt can turn quickly from benign to malign.”
Higher interest rates would inevitably follow such turmoil, damaging investment and increasing the cost of mortgages, he said, noting that the British government’s plan is actually less draconian than is the case in some other countries.
Some of the factors that led to the eruption of the crisis in 2007 are happening again, he warned, particularly the massive flow of capital from poorer to rich countries, which will require international co-operation to be tackled.
New policies should not seek to save every bank. “In 2008, banks were bailed out not to protect them but to protect the rest of the economy from the banks. That may not seem fair – and it isn’t – when other companies, such as Jaguar, had to stand on their own feet or go to the wall.”
The speech was boycotted by Bob Crow, the hardline leader of the railwaymen’s union, the RMT, who said it was like Christians asking the devil to speak to them.
“This is our congress and I don’t think he should have been invited. He is on the side of the bosses – he is not welcome here. You would never see the Conservatives inviting a union general secretary to their conference.”
