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Liz Truss and the Conservative Party.

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najaB

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How does capping bonuses help prevent that?
As noted above, a high base pay.

That takes away the incentive to take excessively risky behaviour in order to boost their bonus.
Ultimately we are competing in a global market. If UK based firms can only offer mediocre remuneration, they will get mediocre candidates.
If I had a choice between a salary of £X and unlimited performance-related bonus and a salary of £2X and a bonus of 200% I know which I would rather have.
 
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takno

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As noted above, a high base pay.

That takes away the incentive to take excessively risky behaviour in order to boost their bonus.

If I had a choice between a salary of £X and unlimited performance-related bonus and a salary of £2X and a bonus of 200% I know which I would rather have.
And until you learn to be more of a compulsive gambler you stand absolutely no chance of being appointed to the board of a major bank. You need to learn to be a plucky go-getter like Andy Hornby - his CV with long career in grocery was on the face of it completely useless for the job of running the UK's fifth largest bank, but a willingness to put everything on the line got him the job, and such was the quality of his work that HBOS hasn't needed a CEO since.[/QUOTE]
 

DynamicSpirit

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As noted above, a high base pay.

That takes away the incentive to take excessively risky behaviour in order to boost their bonus.

I'd give you that it's possible that high bonuses could encourage people to engage in risky behaviour, but seems a bit of tenuous connection to me. All my experience in workplaces (including working for a financial company) is that the overall culture a company engenders is going to be far more important to how much of a long term view employees take.

To be clear, I think 200% bonuses are pretty silly as a way of rewarding people, and I also do think that short-term-ism and excessive risk taking played a part in the 2008 debacle. But at the same time, you do have to be very careful about imposing regulations that basically tell companies how to go about their business. Regulations invariably carry costs so you have to be sure that they are well designed and focused on, what is required to achieve whatever outcome is necessary. It's not obvious to me that capping bonuses meets that criteria. It certainly doesn't seem to me a very well designed regulation. To be convinced that having that cap is a good idea, I'd need to see much better arguments for its effectiveness at reducing risk-taking than I've seen so far.

My concern would also be that it's a regulation that, whatever its notional aim of reducing risk-taking, is actually motivated more by jealousy at people earning lots of money. Certainly, looking at the posts here, very few seem to be arguing about the cap on bonuses on its merits - most posts in favour of the cap seem to be arguing along the lines of, the cap is good because bankers earn so much money. And that's not a good justification for regulating.
 

MikeWM

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To be clear, I think 200% bonuses are pretty silly as a way of rewarding people, and I also do think that short-term-ism and excessive risk taking played a part in the 2008 debacle. But at the same time, you do have to be very careful about imposing regulations that basically tell companies how to go about their business. Regulations invariably carry costs so you have to be sure that they are well designed and focused on, what is required to achieve whatever outcome is necessary. It's not obvious to me that capping bonuses meets that criteria. It certainly doesn't seem to me a very well designed regulation. To be convinced that having that cap is a good idea, I'd need to see much better arguments for its effectiveness at reducing risk-taking than I've seen so far.

I'm pretty much agree with all that. I don't think it is the business of government to tell specific companies a top limit as to what or how they pay their staff, unless it can be shown to deliver a very clear benefit. (Yes, I've used the phrase 'I don't think it is the business of government' a lot lately, but that's a consequence of having a government that tries to do pretty much everything and consequently does so very badly, as opposed to concentrating on the relatively small number of important things it should be doing and so perhaps doing those things a little better).

As far as I understand it, the main issue behind the 2008 crash were down to the existence of collections of highly dodgy financial instruments - that they were allowed in the first place, that the people putting them together did so in a way that tried to disguise their risk, and the ratings agencies that gave them absurdly high ratings. Yes, then there was wildly excessive speculation on those products in the hope of massive gains, but that couldn't have happened if these highly dodgy instruments didn't exist in the first place, or the ratings agencies had done their job and rated them correctly.

I don't think wild financial speculation is remotely helpful for us or for our economy, but I think that is far better dealt with by tough regulation of what products and instruments can be created, traded and bet on. Also significantly tighter control of the ratings agencies, who as far as I am concerned are the real villains of 2008 and yet somehow got away totally unscathed.

(Not that Liz Truss will do any of that either, but my point is that the bonuses thing isn't really the important thing here).
 

brad465

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How many banks have gone bust since bonuses were capped?
While I get what you're saying, we learned in 2008-09 that banks will never go bust, no matter how little regulation there is. The phrase "too big to fail" gained traction as a result of taxpayer bailouts for them, while the lack of consequences for the culprits increases the risk of similar illicit behaviour. What should have happened was what happened in Iceland: the culprits were jailed.
 

najaB

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As far as I understand it, the main issue behind the 2008 crash were down to the existence of collections of highly dodgy financial instruments - that they were allowed in the first place, that the people putting them together did so in a way that tried to disguise their risk, and the ratings agencies that gave them absurdly high ratings. Yes, then there was wildly excessive speculation on those products in the hope of massive gains, but that couldn't have happened if these highly dodgy instruments didn't exist in the first place, or the ratings agencies had done their job and rated them correctly.
Again though, these dodgy instruments were only created because of the culture of unlimited reward for success and zero consequence for failure. We have seen this again and again with things like PPI, derivatives, sub-prime lending, short selling, etc. Yes, you can ban things after it's apparent that they're an issue but it's better to fix the underlying cause.
I don't think wild financial speculation is remotely helpful for us or for our economy, but I think that is far better dealt with by tough regulation of what products and instruments can be created, traded and bet on.
The problem there is that you only know it's a problem after it's a problem.
What should have happened was what happened in Iceland: the culprits were jailed.
That works too. Let them have the unlimited reward for success but create genuine consequences for failure.
 

takno

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Again though, these dodgy instruments were only created because of the culture of unlimited reward for success and zero consequence for failure. We have seen this again and again with things like PPI, derivatives, sub-prime lending, short selling, etc. Yes, you can ban things after it's apparent that they're an issue but it's better to fix the underlying cause.

The problem there is that you only know it's a problem after it's a problem.

That works too. Let them have the unlimited reward for success but create genuine consequences for failure.
Don't disagree, although singling the employees out here is a mistake - the whole concept of limited liability companies able to pay out everything to shareholders and collapse 6 months later is an equally serious issue.

I'd also point out that almost everything on your list of bad things is not a bag thing per se - derivatives are an essential form of business insurance, short selling when not done nakedly is basically just a way around settlement inflexibility, and even high quality PPI that is knowingly purchased and not riddled with get-out clauses has value.

PPI is an interesting case because a lot of the sale of it was being driven by comission paid to branch staff, and by normal staff in marketing optimising for a 20% bonus. The board could have sat and stomped their feet all day and none of it would have got sold without the actions of the small players. Banning massive bonuses isn't any kind of silver bullet therefore
 

DerekC

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I think @MikeWM got it right - whatever you think about the bonus issue (and it's certainly bad politics whatever you think about the financial effects), the real problem is that the lessons of the 2008 crash in terms of regulation and stricter rules are in danger of being forgotten in the Truss "rush for growth".
 

Yew

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I think @MikeWM got it right - whatever you think about the bonus issue (and it's certainly bad politics whatever you think about the financial effects), the real problem is that the lessons of the 2008 crash in terms of regulation and stricter rules are in danger of being forgotten in the Truss "rush for growth".
Unfortunately, I feel that said "rush for growth" will hardly have an effect outside of a the London banking sector. A pittance, thinly spread across money years does not a Northern Powerhouse make.
 

Typhoon

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I think @MikeWM got it right - whatever you think about the bonus issue (and it's certainly bad politics whatever you think about the financial effects), the real problem is that the lessons of the 2008 crash in terms of regulation and stricter rules are in danger of being forgotten in the Truss "rush for growth".
That surely is the point. At a time when the man/woman in the street are likely to be struggling, pushing through this policy at this time sends all the wrong messages. Assuming it is in the mini-budget fiscal event, it is will be writing Starmer/ Reeves reply for them. Any by-elections, Lib Dems, Labour, Nationalists will be putting it to the forefront. If they really think it is a great idea, put it forward in the spring when the average person has had 'some benefit from other policies'.
 
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Lost property

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That surely is the point. At a time when the man/woman in the street are likely to be struggling, pushing through this policy at this time sends all the wrong messages. Assuming it is in the mini-budget fiscal event, it is will be writing Starmer/ Reeves reply for them. Any by-elections, Lib Dems, Labour, Nationalists will be putting it to the forefront. If they really think it is a great idea, put it forward in the spring when the average person has had some benefit from other policies.
Can that be amended to read "endured a Winter of hardship and deprivation " please.
 

najaB

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That surely is the point. At a time when the man/woman in the street are likely to be struggling, pushing through this policy at this time sends all the wrong messages. Assuming it is in the mini-budget fiscal event, it is will be writing Starmer/ Reeves reply for them. Any by-elections, Lib Dems, Labour, Nationalists will be putting it to the forefront. If they really think it is a great idea, put it forward in the spring when the average person has had some benefit from other policies.
In any case, a lot of damage has already been done by attempting to justify the policy change, even if it doesn't go ahead. Those sound bites will likely come back to haunt the in the next election campaign.
 

DynamicSpirit

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What should have happened was what happened in Iceland: the culprits were jailed.

That works too. Let them have the unlimited reward for success but create genuine consequences for failure.

Ummm, I thought jail was supposed to be the consequence of breaking the law, not a general consequence of failure? (I assume the people who were jailed in Iceland were people who were found to have knowingly broken laws).
 

najaB

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Ummm, I thought jail was supposed to be the consequence of breaking the law, not a general consequence of failure? (I assume the people who were jailed in Iceland were people who were found to have knowingly broken laws).
Indeed it is. The problem is that under UK law breach of fiduciary trust is dealt with as a civil matter. Gross breaches should be a criminal matter.
 

brad465

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Ummm, I thought jail was supposed to be the consequence of breaking the law, not a general consequence of failure? (I assume the people who were jailed in Iceland were people who were found to have knowingly broken laws).
I think there should be criminal consequences wherever one's bad actions have profound negative consequences on the lives of others, which is the case for pretty much every existing criminal act possible. For breaches/incidents where the bankers/senior executives and their business are the only one's to suffer the consequences of their own actions, then I'm all for that behaviour to remain a non-criminal matter. I accept workers would likely lose their jobs and I'm not suggesting that be criminalised, but protections for pensions and redundancy pay-outs should still exist.

But the behaviour up to and including 2008 ended up costing taxpayers, savers, homeowners, the lot, dearly, and the effects of this are still far-reaching, while the only real consequence I recall among those responsible was (rightly) Fred Goodwin losing his knighthood.
 

Typhoon

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Can that be amended to read "endured a Winter of hardship and deprivation " please.
I agree entirely with your statement as regards reality

I should perhaps have written the statement in inverted commas as that is almost certainly how the 'Unchained' people would regard it. Truss probably thinks she is some modern incarnation of Lady Bountiful. (Please be very, very careful if you google that.)
 

Lost property

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I agree entirely with your statement as regards reality

I should perhaps have written the statement in inverted commas as that is almost certainly how the 'Unchained' people would regard it. Truss probably thinks she is some modern incarnation of Lady Bountiful. (Please be very, very careful if you google that.)
I think she probably sees herself as more Lady Termagant Flaybum...although for many Ms Mordaunt is possibly more applicable...but I'm certainly not a willing recipient of pain for this Gov'ts pleasure.

Gillray and Hogarth would probably be serving whole life tariffs now with their satire...and with the current Gov't in mind
 

MikeWM

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Again though, these dodgy instruments were only created because of the culture of unlimited reward for success and zero consequence for failure. We have seen this again and again with things like PPI, derivatives, sub-prime lending, short selling, etc. Yes, you can ban things after it's apparent that they're an issue but it's better to fix the underlying cause.

I agree, but while I'm no fan of wild speculation in financial markets *at all*, it tends to even out and things tend to continue along in more-or-less equilibrium. Some people bet one way, some people the other, some win, some lose.

But - as far as I understand it - the issue in 2008 was that almost everyone was betting one way, primarily due to the ratings agencies erroneously and/or fraudulently asserting that these products were incredibly safe. So when that turned out not to be the case, there was no balance and things everywhere starting collapsing. Those few that did bet the other way because they did the research and realised it was all a house of cards, got very rich in the process (Michael Burry, for example).

I think of it as building a 100-floor skyscraper on incredibly unstable ground that can barely sustain one floor. When it all falls down, do you blame

- the surveyors, who said the ground was top quality, and kept on saying it was perfectly safe to add more floors every time they were asked?
- the regulators, that allowed building 100-floor skyscrapers in the first place without adequate safety and other checks (including on the probity of the surveyors)?
- the builders, who greedily kept on building more and more floors to maximise their profit?

The builders should take some small part of the blame for being greedy, but the real issue is with the regulators and the surveyors.
 

najaB

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I think of it as building a 100-floor skyscraper on incredibly unstable ground that can barely sustain one floor. When it all falls down, do you blame

- the surveyors, who said the ground was top quality, and kept on saying it was perfectly safe to add more floors every time they were asked?
- the regulators, that allowed building 100-floor skyscrapers in the first place without adequate safety and other checks (including on the probity of the surveyors)?
- the builders, who greedily kept on building more and more floors to maximise their profit?

The builders should take some small part of the blame for being greedy, but the real issue is with the regulators and the surveyors.
Most of the blame goes to the building owner who told the builders that they will get paid by the number of floors they can build.
 

MikeWM

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Most of the blame goes to the building owner who told the builders that they will get paid by the number of floors they can build.

If that's your answer, fair enough, but it wouldn't be mine.

I'd say the surveyors that were either totally negligent, or criminally corrupt, in saying that the land was good quality, were the main culprits, along with the regulators for not checking they were honest and doing a decent job (and with no consequences for them if they weren't).
 

najaB

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I'd say the surveyors that were either totally negligent, or criminally corrupt, in saying that the land was good quality, were the main culprits, along with the regulators for not checking they were honest and doing a decent job (and with no consequences for them if they weren't).
But, by the same token, the fact that nobody has made something illegal doesn't mean doing it isn't immoral. The problem is that the culture in many companies in the finance sector really was summed up by the famous line in Wall Street - "Greed is good". Which isn't necessarily a bad thing, but the problem is that many people believe that if greed is good, more greed must be better.
 

brad465

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Jacob Rees-Mogg earlier today accused those speaking out against fracking as being luddites, which is up there among the most ironic things ever said:


The government is facing a backlash from its own MPs over its decision to lift a ban on fracking in England.
Business Secretary Jacob Rees-Mogg promised local people would be consulted before fracking gets under way in their area.
He declined to say how they would be asked, but claimed that fracking would become popular if drilling firms paid residents for the "inconvenience".
He faced claims he was trying to buy people off, in a heated Commons debate.
He told MPs: "We should not be ashamed of paying people who are going to be the ones who don't get the immediate benefit of the gas but have the disruption."

Pressed further on whether consent would be obtained through local referendums or the planning process, Mr Rees-Mogg said: "It will be a matter that is dealt with in a governmental way."
Tory MP Mark Fletcher said it appeared communities would be "bought off" to allow fracking - a technique for recovering gas and oil from shale rock - under the government's plans.
The MP for Bolsover, a former Labour stronghold in Derbyshire, said: "I've listened carefully to the secretary of state and I have to say the local consent plans don't seem to wash.
"It seems to come back to communities being bought off rather than having a vote."

'Dangerous fantasy'​

A number of cabinet ministers have expressed opposition to fracking in the past, including Chancellor Kwasi Kwarteng who told the Daily Mail earlier this year: "Even if we lifted the fracking moratorium tomorrow, it would take up to a decade to extract sufficient volumes - and it would come at a high cost for communities and our precious countryside."
A string of Tory, Labour and Lib Dem MPs with potential fracking sites in their constituencies joined in with the criticism, in the House of Commons.
The Tory MP for Rushcliffe, Ruth Edwards, said: "I have many concerned constituents who want to know that they have a genuine route to rejecting fracking applications that don't have local support, and I'm still not clear what that would be."
And Scott Benton, Tory MP for Blackpool South, said: "My constituents are understandably anxious about fracking returning to the Fylde coast."
Labour's shadow climate change secretary Ed Miliband, who secured an urgent question in Parliament on the issue, described fracking as a "dangerous fantasy" and accused Mr Rees-Mogg of "creating a charter for earthquakes".
"We now have an energy policy run for big fossil fuel interests not for the British people. No to the windfall tax and yes to dangerous, unsafe fracking," he said.

'Any potential sources'​

Mr Rees-Mogg said fracking was in the national interest and would make the country richer - and he accused Mr Miliband and others who spoke out against it of being "luddites".
He suggested current limits on acceptable levels of seismic activity are too restrictive and said the government is determined to "realise any potential sources of domestic gas".
Regulations require work to stop if tremors above 0.5 on the Richter scale are detected, but Mr Rees-Mogg said he wanted that lifted potentially to 2.5.
"There are millions of seismic events of 2.5 or lower in the world every year, we should not assume that every seismic event is the San Francisco earthquake."
But Conservative former minister Sir Greg Knight told MPs the risks of shale gas exploration were an "unknown quantity" and "the occurrence of seismic events as a result of fracking remains a challenge to the experts".
He added: "The safety of the public is not a currency in which some of us choose to speculate."

Something else that caught my eye was John Rentoul from The Independent claiming a former Labour Special Adviser thinks Truss will be gone by March:


A Labour former special adviser tells me they think, given the state of the economy, Truss will be out by March

While there is a tough winter ahead and her latest spate of unpopular (and not logical, accepting sometimes unpopular things need doing) policy plans don't look good politically, this does seem optimistic. I think it's more likely that Truss stays on until the next election, even if it looks like she'll lose it, simply because getting rid of a leader after only 6 months is very chaotic.
 

najaB

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I think it's more likely that Truss stays on until the next election, even if it looks like she'll lose it, simply because getting rid of a leader after only 6 months is very chaotic.
Phil touched on this in a recent video (linked below) - there are, apparently, a significant number of Tory MPs in marginal constituencies who see dumping Truss as more conducive to their personal chances of holding onto their seat than letting her lead them into the next election.

 

MikeWM

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But, by the same token, the fact that nobody has made something illegal doesn't mean doing it isn't immoral. The problem is that the culture in many companies in the finance sector really was summed up by the famous line in Wall Street - "Greed is good". Which isn't necessarily a bad thing, but the problem is that many people believe that if greed is good, more greed must be better.

Oh, in general I entirely agree. I think as a society we should really have a long hard look at most of the activities that the banks and financial institutions get up to, and ask if they are really adding any value to society whatsoever. My suspicion is that the vast majority aren't, and we'd be significantly better off without them, but of course that is very difficult/impossible to implement in isolation when these companies are multinational.

I *do* think this is very much an area where government intervention and regulation is both necessary and a *good thing*, but I want them intervening and regulating the correct things, and my gut feeling is that when governments do things like limiting banker bonuses that is mostly performative tokenism to try to cover for the fact they won't or can't do the things that are actually necessary.
 

brad465

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The "fiscal event" has been announced, which included the following:

- Stamp Duty cut
- Income tax cut to 19p from next April; 45p rate being scrapped
- NI rise reversed
- Corporation tax rise scrapped, so with remain at 19%
- 40 new "investment zones"
- Banker Bonus cap lifted
- £60bn of borrowing to cover energy support for next 6 months
- VAT free shopping for overseas visitors
 

Perthsaint

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The "fiscal event" has been announced, which included the following:

- Stamp Duty cut
- Income tax cut to 19p from next April; 45p rate being scrapped
- NI rise reversed
- Corporation tax rise scrapped, so with remain at 19%
- 40 new "investment zones"
- Banker Bonus cap lifted
- £60bn of borrowing to cover energy support for next 6 months
- VAT free shopping for overseas visitors
Tell me you want to increase inflation without telling me you want to increase inflation.
 

najaB

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Tell me you want to increase inflation without telling me you want to increase inflation.
The only thing in that list that is actually likely to do anything useful is removal of VAT on tourist purchases. The rest is just trickle-down economics, which always works.
 
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