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A deal between UK banks and the government will see bonuses curbed and increased lending to SMEs, chancellor George Osborne announced today.
Negotiations for the agreement on bonuses and lending, code-named Project Merlin, started in October 2010.
The banks concerned include Barclays, HSBC, Lloyds Banking Group, RBS and, with respect to lending, Santander.
Osborne said in a statement to the Commons this afternoon that Britain needed to move "from retribution to recovery".
Following negotiations with the banking sector, total bonuses paid this year will be lower than those paid out in 2010.
At bailed-out banks, cash bonuses will be capped at £2,000, while board executives may only claim bonsues in shares, which they will not be able to cash until 2013.
Measurements for increased transparency and accountability were also announced.
In 2011, the pay of the five highest paid 'senior executive officers' will also be published, without names and voluntarily, in addition to the pay of the executive directors already published in annual accounts.
In order to increase lending to businesses, the pay of all chief executives will be linked to the amount they are willing to loan businesses, especially SMEs.
The banks have pledged to lend £190 billion of new credit to business in 2011, up from £179 billion in 2010. £76 billion of this new lending capacity will be to small and medium-sized Enterprises (SMEs).
This represents a 15% increase on the amount lent in 2010 (£66 billion).
Shadow chancellor Ed Balls slammed the results of the negotiations as "meaningless".
He accused the government of throwing in the towel over cracking down on bonuses, and claimed that the coalition had not gone far enough in their demands on the banks; leaving himself open to attacks from Osborne for his role as City minister during Labour's years in power.
Balls dismissed Project Merlin as more similar to the Wizard of Oz, with nothing behind the mask .
He asked which ministers are "without a brain, without courage, and which is without a heart?"
Article Comments
The question we need to ask is how. The banks say demand is down. They say applications are running at an 80 per cent acceptance rate. If this is the case, how do they intend to increase lending to small firms by 15 per cent?
I believe the answer is that they must review risk criteria and be less punitive on viability assessments, and make a particular effort to cut down on sector-based discrimination.
The banks must be more proactive in securing up-to-date financial information from their clients and they need to communicate more clearly to applicants what the key assessment criteria are, so applications are more compliant with the lenders' needs.
Phil Orford, chief executive, Forum of Private Business
10th Feb 2011 at 10:12 am
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