Bonuses: a question of political economy

There is a reason why the coalition has used the Lib Dem conference to step up its rhetoric about the bankers and their bonuses. The coalition believes, rightly, that balancing the budget is a matter of political economy. It is acutely aware, and has been for some time, that the sight of banks paying out huge bonuses later this year just as the public sector begins to lay people off and cut services would be disastrous. This view is shared by everyone in the coalition from Cable to Osborne.

Bumper bonuses would increase calls for new punitive measures against the banks and produce precisely the kind of political atmosphere that the more aggressive trade union leaders want. So, getting the banks — which feel that they have been very restrained for the past few years — to limit the size of these bonus payments is crucial. The coalition has decided that the best way to do this is to use its bully pulpit to warn the banks about what the consequences of mega bonuses would be.