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February 17, 2012 / politicsbitesize

Project Merlin falls short

Picture of The City of London - Free Pictures

Banks and bankers’ bonuses have been under heavy criticism recently and George Osborne has had enough. In a speech to the Federation of Small Businesses on Tuesday 14th February the Chancellor said, “of course rewards for failure are unacceptable…But a strong, free market economy must be built on rewards for success.” After stripping Fred Goodwin of his knighthood and seeing Stephen Hester relinquish his bonus, both the Chancellor and the Prime Minister have now called for an end to, what they call, ‘banker bashing’.

The Government feels that the public attitude toward bankers has become over-zealous and is concerned it will lead to an anti-business ethos in the UK. But what leads the British public to their ardent outlook on the issue of bankers’ bonuses is the continued hypocrisy within the industry. The Chancellor claims that ‘rewards for failure are unacceptable’, yet bonuses are still being paid to bankers even when the banks themselves are seen to be underperforming. Figures published in a report by the Bank of England found that lending to small and medium sized businesses had fallen short. Instead of lending £1.1bn to SMEs, the banks that signed up to the lending targets outlined by Project Merlin only lent £74.9bn.

So the banks have missed the targets set by the Coalition Government’s Project Merlin, but what is this Project Merlin? In February 2011 George Osborne announced details of his new agreement between the government and four of the UK’s biggest banks – RBS, Lloyds Banking Group, HSBC and Barclays. These four Merlin banks committed to lending more money to the small and medium sized businesses, which had felt starved of finance since the beginning of the crisis in 2008. They also agreed to pay less in bonuses than they had in 2010 and to be more transparent about pay packages. It has to be acknowledged that the last two objectives have been achieved: although Bob Diamond, the boss of Barclays bank, is expected to receive a £2m bonus in 2012 it is still less than the £6m he received in 2010!

However, these four banks have failed to meet the targets imposed on them by Project Merlin and, in George Osborne’s own words, ‘rewards for failure are unacceptable’. With the usual round of bonuses going ahead in the City of London this month, the Chancellor and the Prime Minister should be implementing the conditions of their Merlin project, because it is the huge, self-determined rewards in the face of failure that are fuelling the British public’s ‘banker bashing’ sentiments. We are anti-greed, not anti-business!

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