Well done to the Royal Bank of Scotland!

The Guardian has reported in the last few minutes:

Bailed out Royal Bank of Scotland reported losses of £1.1bn for 2010 – but still plans to pay out bonuses of £950m to its bankers.

The contempt bankers have for society is evident in the comments made by Stephen Hester made. The Guardian reports:

He admitted that he was not able to hire staff as easily as he hoped because the bank has often become a “political football”.

“Our ability to attract, retain and motivate the best people is still not what we want it to be. Our business challenges and the external environment lead to management compromises that add risk to the achievement of our business goals. We are working hard to move forward and balance staff motivation with external acceptance that past mistakes have been addressed,” he said.

Motivation is not created by £950 million in bonuses?

Just think.

If RBS had paid no bonuses, then there would be just a small little loss. Which would mean that the government would get no tax money: you don\’t pay 28% corporation tax on a profit that hasn\’t been made.

If you pay out £950 million in bonuses then of that £950 million, 63.8%* will go in tax to the government.

So, the government, all those front line services, are better off by £606.1 million.

Well done the Royal Bank of Scotland!

In more detail, we might look at the actual results:

Hmm, no, that\’s not formatting, so have a look at page 23.

You will see that the City style stuff, the markets, the investment bank style bits where people do get large chunks of wonga as a bonus made huge great big gobs of money.

You will also see that the losses came from \”impairments\”, losses on past activities, and these losses were in retail and commercial (Ulster Bank did something very wrong there).

That is, the peeps getting bonuses made huge amounts for the bank, the people who don\’t normally get huge bonuses (retail and mortgage managers etc) in the past lost huge amounts.

At which point I defy you to tell me that paying bonuses is a bad idea.

* Assume, a not unlikely assumption, that all those getting bonuses are already at the top tax rate of 50%, add 13.8% employer\’s national insurance.

15 thoughts on “Well done to the Royal Bank of Scotland!”

  1. @UKliberty
    It doesn’t look like “failure” to me on this occasion. As long as bonuses are only earned by taking well-managed risks and are paid out on deferred terms as per the new rules, where’s the problem?

    Murphy today is saying that the investment banks should be scrapped as they produce no benefit to society as a while and just benefit a view. Well the tax on the bonuses and the profits certainly help more than the few. How much worse off would the country be without that tax revenue? The man is a moron.

  2. Gerald ,

    In this particular case, surely the “failure” is the losses? I have no view on it – it’s the view expressed to me by people angry with the banks. It’s no good saying to them, “you ought to be happy because of all the tax we’re getting from the bonuses.” Their view is that the staff at the banks we ‘bailed out’ don’t deserve the bonuses and that people responsible for losses don’t deserve bonuses. Put that way, it seems difficult to argue with.

    As for Murphy, I really dislike this “socially useful” stuff he keeps spouting. I find it quite sinister.

  3. Isn’t the problem with your argument is that, unlike Barclays, “we” own RBS. So they could have paid that cash as a dividend to the govt and got 100% of it?
    I’m not saying they should have done, but the ownership makes a difference.

  4. “If you pay out £950 million in bonuses then of that £950 million, 63.8%* will go in tax to the government.”

    Small Niggle –You can’t just add the percentages up. 50% Income tax and 2% NI come out of every £100 of wages. But the Employers NI is on top of not out of wages so the company pays £113.8 of which you get £48 and £65.8 in tax. But £65.8 is divided by the £113.8 NOT £100 to work out the total tax wedge between the employer’s cost and employee’s net wage. So the marginal rate is 57.82% NOT 65.8%

  5. Copy and Paste of a previous comment of mine:

    “Quick quibble. Employers NI is on top of the income not a part of it, like VAT. Hence a 25% VAT on a good with pre VAT price of £80 gives a final price £100 OF WHICH 20% not 25% is the VAT.

    With the 2011 (I think?) tax years NI rates at 12%/2% for basic/higher employee and 13.8% this gives to one decimal place.

    Basic Rate: 1-((1-0.2-0.12)/1.138)=0.402 = 40.2%

    Middle Rate: 1-((1-0.4-0.02)/1.138)=0.490 = 49.0%

    Higher Rate: 1-((1-0.4-0.02)/1.138)=0.578 = 57.8%”

  6. “I really dislike this “socially useful” stuff he keeps spouting. I find it quite sinister.”

    Indeed. He ought to worry, because the totalitarian regime he craves would of course mark him up as “not socially useful” and he’d become bars of soap and felt socks.

  7. The problem I have with complaining about banker’s bonuses is that it is too unfocused. To make a military analogy, if the Rupert says, “that village is a nest of insurgents, take it out”, and it turns out it’s the wrong village, it’s the Rupert that takes the blame, not the squadies. Similarly, it seems to me if the manager says “go sell these lemons”, and it goes pear shaped, the troops are in the clear and entitled to their bonus, their managers on the other hand should be looking at a court financial, or whatever.

  8. I suspect (it would be great if anyone has the time to dig the figures out) that a very substantial portion, maybe even a majority of the bonuses are paid to employees in the United States or elsewhere in the world outside the UK.

    In which case the maths are around the benefits to the UK treasury looks a little dubious.

  9. ukliberty
    Yes, the “failure” is the losses, but one year of losses amongst many years of profits needs to be taken in context. Its the collateral damage caused by the losses which clearly makes those losses unacceptable and that obviously has to be addressed and managed so that it can never be repeated. Although poor (lack of?) government regulation of banks globally also played rather a big part in what the banks got up to!

    What Murphy and his merry band of fuckwits have to realise is that a better-regulated banking system to eliminate the excessive risk-taking is vital going forward, as the tax revenues that it produces for the country are essential to the country’s future. He wants the whole investment banking sector closed down because of its “social uselessness”, but surely even a fuckwit can see the benefit of retaining a better-regulated investment banking sector.

    Who would pay the taxes necessary to run the UK if the City disappears? Its not as though the country actually manufactures anything these days to export. But in dimwit Murphy’s mind that’s a good thing because there will be no gap in earnings between the richest and poorest and society will be so much the better for it. Yeah- right! Didn’t the Soviet Union try that one?

  10. Turning £113.80 into £50 in the pocket isn’t 63.8% tax.

    Bad maths, or propaganda, Tim?

    I think you might have missed the tail of employee’s NI too. So maybe just sloppy journalism. Who would have thought it?

  11. A quibble: by no means all of those getting bonuses will be 50% taxpayers; in investment banking, all staff expect bonuses, including assistants, HR, IT, compliance, etc.

    On the other hand, the bulk of the 950mm will have gone to the big earners, so it doesn’t substantially alter the argument.

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