UK government 'pulled out of bonus deal'

25 January 2011

British chancellor George Osborne was forced to pull out of an agreement with some of the country's leading banks on the issue of bonuses following pressure from the Liberal Democrats, it has been claimed.

According to the Financial Times, Mr Osborne had reached a tentative deal with former Barclays chief executive John Varley, but the plug was pulled by senior Lib Dems Nick Clegg and Vince Cable, who deemed it unsatisfactory.

The newspaper claims that talks were at such an advanced stage, staff had been instructed to find a venue at which to make a formal announcement before the junior partner in the coalition government stepped in.

Lib Dem Treasury spokesman Lord Oakeshott had previously stated that the party would prefer to strike no deal with the financial sector rather than be responsible for a "sell-out" and has been strongly critical of the Treasury in recent months.

Although Mr Osborne's camp insisted that "common consent" among Mr Clegg, prime minister David Cameron and Mr Cable had resulted in a decision to continue negotiations further, Lib Dem sources claimed the initial proposals would have largely let the banks off the hook.

One insider close to the chancellor told the news provider that Lib Dem opposition had "absolutely not" been the main reason behind the scrapping of the original deal, adding that the coalition had simply opted against rushing it through.

Under the terms of the provisional agreement, financial institutions would have been set a target of increasing lending to businesses by around ten per cent, while the government would have opted not to introduce further punitive taxes.

The report came after it emerged Barclays was considering paying approximately 1,000 of its senior traders in bonds which could be converted to equity in times of trouble, meaning bankers would receive relatively little if the firm performed badly.

By Asim Shah

Become a bobsguide member to access the following

1. Unrestricted access to bobsguide
2. Send a proposal request
3. Insights delivered daily to your inbox
4. Career development