City bankers are ruining your life again. They just can’t help it. Rescued from collapse in 2008 and force fed a healthy financial diet ever since, the industry is now in fine fettle. And with a deluded display of arrogance only they can muster, bankers have come to see themselves as a force for good, especially in these troubled times.
Their sizable reserves are largely intact and the hazardous operations that caused so much trouble more than a decade ago are overseen by tough regulators.
Unable to indulge in their usual risky behaviour, they have been allowed to revive one pre-crash habit – dishing out huge bonuses to their directors, traders, derivatives brokers, marketing executives and pension fund managers.
City bonuses in February and March this year were the largest in cash terms on record, driving the gap between pay with and without bonuses to its highest-ever level. By the time figures for the year to May came out, total pay including bonuses in finance and insurance was up 13.6%, down only marginally from a peak of 15.4% in the year to March.
The consultancy CEBR said that a closer look at the figures found that in May, workers in the top 1% of earners, most of them in the financial sector, enjoyed pay packages more than 10% larger than the year before, while those in the bottom 20% received just 1% extra.
There were some other winners in the race for higher pay, including construction workers, HGV drivers and hospitality workers. But these rises can be attributed to Brexit-related staff shortages, and the increases, while substantial in percentage terms in some cases, are often from a very low base.
The stench of injustice generated by a City bonus culture – one that shows again how bank profits are considered a private affair while losses are society’s problem – should trigger a wave of angry protests. However, there is a wider point, and that is the way pay and bonuses in the finance sector have exaggerated average earnings data, apparently tricking policymakers into thinking everyone is enjoying a pay bonanza.
Bank of England governor Andrew Bailey is guilty of this: he has repeatedly implied that workers are so secure in their jobs now the unemployment rate is down to 3.8% – its lowest in 40 years – that they will bid up their wages across the board. He first turned on workers in February when he said there should be “quite clear restraint” in the annual wage-bargaining process between staff and their employers to help prevent an upward spiral in prices. Bailey suffered withering criticism from union leaders, and even a rebuke from an embarrassed No 10, at the time under the Partygate cosh and keen not to upset the electorate any further.
Yet that didn’t stop him repeating the message in May, telling MPs that workers should “think and reflect” before asking for pay rises. He added a plea directed at high earners, who he said should consider the impact of inflation before seeking big increases. He capped his own salary at £575,000.
Understandably, the reference to high pay was laughed at by unions unable to secure higher than a 2% average increase in February – a figure that has since risen to only 4%. Average pay increases across all industries averaged 4.3% in May, up from 4.2% in April.
Bailey defended himself, saying his regional agents had warned of big pay rises coming down the track. Without his calls for restraint, the six consecutive interest rate rises since December might not be enough to head off further rises in inflation, even if energy prices came down.
Maybe the regional agents were focused on some of the UK’s largest employers, who face strikes over pay. Recent ballots by postal workers and railway staff, with nurses to follow, may represent the beginning of a mass pay revolt, but another arm of Bailey’s empire, his research department, predicts average pay growth reaching only 5.25% by the end of this year, 7.75 percentage points short of its 13% forecast for peak inflation.
So why, when pay growth is low everywhere except the finance industry and businesses affected by Brexit-related staff shortages, are the rest of the population being told their salary increases are so high that borrowing costs must rise?
Not only do higher mortgage costs hit millions of homebuyers, but the effects also bleed into rents, because so many landlords have bought properties with huge loans. Higher borrowing costs will weigh on all household spending and business investment, pushing the economy into a deeper recession than is already on the cards.
Damn those City bankers, and shame on the central bank for ignoring the bad smell under its nose.