January 10, 2011 / 6:02 PM / 7 years ago

FACTBOX-British storm over bank bonuses

Jan 10 (Reuters) - Britain is urging banks to curb bonus payments to assuage public anger about harsh spending cuts imposed after the bailout of banks contributed to a record peactime budget deficit. [ID:nLDE70805S]

Banks were expected to award 7 billion pounds ($11 billion) bonuses in coming weeks, stoking resentment among Britons facing pay freezes or below-inflation pay rises, and embarrassing the government as austerity measures begin to take hold.

Below are facts on bonuses and measures to curb them:

WHY THE FUSS?

* The public blames bankers for the 2008 financial crash which saw banks stop lending to each other and a near freeze in debt markets. This forced the government to pump billions into the economy to kick start lending and prevent economic collapse.

* State tax revenues fell and welfare payments rose which, along with the money pumped into the financial sector, resulted in a record peacetime budget deficit that prompted harsh austerity measures last year.

* An estimated 330,000 public sector workers face losing their jobs due to government spending cuts and most Britons will see higher taxes and a reduction in public services.

* While bank lending has improved, credit conditions for small businesses and Britons seeking loans such as mortgages are still tighter than they were before the crisis, prompting accusations the finance industry has done little in return for the state aid.

* Many top bankers waived their bonus pay last year in response to public anger, but there has been no indication yet whether they will do so again.

WHAT‘S BEING DONE?

* Britain has adopted European Union rules curbing bonuses. Measures include the mandatory deferral of parts of a bonus, retention of portions paid in shares and strict conditions on guaranteed bonuses. The aim is to curb risky banking practices in the pursuit of higher bonuses. [ID:nLDE6BG1E9]

* Britain has introduced a levy on bank balance sheets that will raise 2.5 billion pounds a year when fully in place.

* Business secretary Vince Cable and finance minister George Osborne are regularly meeting senior bank executives to urge pay restraint and more lending.

* The Conservative-led coalition government, which also includes Liberal Democrats, has given mixed signals on whether further action could be taken on banker pay. While both parties have been keen for the finance industry to curb bonuses, the Lib Dems appear more aggressive in pushing for stricter curbs.

    * Prime Minister David Cameron has suggested he could veto large bonuses at the Royal Bank of Scotland (RBS.L), which is more than 80 percent state-owned after it pumped billions into the bank to rescue it from collapse.

    * Cameron’s office has also said the government would not set bonus pools for individual banks.

    * Industry sources have said an agreement on restraining pay could be made alongside a commitment to small-business lending.

    * The opposition Labour party has called for the reimposition of a bonus tax, a one-off measure by the previous Labour government which raised about 3.5 billion pounds. The government says this would trigger tax avoidance.

    WHAT ARE THE RISKS?

    * Britain’s economy relies heavily on the financial sector, and the government fears banks will relocate abroad to avoid increased regulation.

    * The government may be damaged if it was seen to let bankers get away with high bonus pay. The Lib Dems, suffering a slump in the polls, are particularly keen to claw back support by being tough on banks.

    * A shakier or damaged coalition government could affect its ability to push through its austerity plan, devised to protect Britain’s triple-A credit rating, the highest possible and which lets it borrow money more cheaply than a lower rating would.

    Writing by Mohammed Abbas: Editing by Dan Lalor $1 = 0.6433 pound

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