Over 3,500 UK-based bankers are paid over €1 million, according to figures from the European Banking Authority (EBA) released this week.
That’s three times the rest of Europe put together – in Europe outside Britain, only 1,200 individuals are paid such sums.
It’s a remarkable statistic and indicative of the UK’s vast financial services industry, the importance of which is forcefully asserted by banking lobbyists in policy debates around everything from income tax to Brexit.
But the benefits of all these well-paid bankers to ordinary people are not so immediately apparent.
The UK might lead the millionaire bankers league, but in terms of GDP per capita (an imperfect but useful measure of a country’s prosperity) the UK ranks 9th out of 28 across the EU. In that more meaningful measurement of prosperity, we’re distinctly mid-table, more of a West Ham or Everton than a Man United or Liverpool. So while the big bet on the banking industry as the engine of UK growth is clearly providing a great deal of wealth for top bankers, it’s not generating outsize prosperity for our country as a whole.
Indeed, not only is our GDP per capita lower than most of the other countries in Northwest Europe, we also have much higher levels of income inequality. Figures from the Luxembourg Income Study (a well-respected compendium of statistics on pay and inequality) suggest that the poorest 10% of households in the UK have lower incomes than the poorest 10% in France, Germany, Belgium, the Netherlands, Denmark, Sweden, Norway, Finland, Switzerland or Austria. Meanwhile the top 10% in the UK make more than their counterparts in those countries. Not much of a ‘trickle-down effect’ there, then.
Of course, if we set aside the LIBOR scandal and foreign currency exchange manipulation, drug money laundering, facilitation of tax dodging, persecution of small businesses, PPI mis-selling, breaches of international sanctions, food price speculation, antics of various rogue traders and the entire financial crisis, the banking and financial services sectors do fulfil a useful economic function. Lending to businesses, for example, or investing our pension funds. But their costs in carrying out these activities are largely driven by the pay packages of the people overseeing them.
So effectively, multi-million pound pay for bankers or asset managers has as an impact on returns to the pensions of ordinary workers or the cost of access to finance for businesses with high growth potential. When you think that total pay for the 3,500 UK bankers covered by the EBA report alone equates to about £6 billion, it becomes clear that there is a potentially very significant opportunity cost of high bankers pay.
Normally, investors in financial services institutions would be expected to control wildly excessive costs, but given that the investment industry is populated by the same extremely wealthy and well-paid financiers, it’s unsurprising that they have no interest in tackling the culture of self-enrichment.
This is why representation for workers and other stakeholders on the boards of major UK companies, including banks, is such a necessity, to introduce independent oversight based on real world experiences over their strategy and business practices. Other good ideas for reform include breaking up RBS and turning it into a regional, state-backed banking network, offering alternatives to the big City of London institutions. Consolidating pension funds into fewer, larger entities and bringing more of their functions in-house, rather than outsourcing them at high cost, would reduce the number of well-paid intermediaries leaching money out of the investment process. Measures like a financial transaction tax, or agreements on minimum levels of personal taxation for very high earners should also be objectives at an international level.
These kind of policies are often decried by the powerful financial services lobby as extreme. But the real extremism is an economic system that enables a tiny elite to rake in millions while the poorest households endure living standards well below their equivalents in comparable countries. The EBA report exposes the economic divides that persist in Britain, and should be a spur to do better.