What we really need is a law against vacuous speeches
No time for a proper blog today, but I've just taken a quick skim through Darling's conference speech. I wanted to find the detail on his two pre-announced Big Announcements, ie Labour's new laws to "crack down on bankers' bonuses", and to ensure "fiscal responsibility".
Here's what he told us:
1. Bankers bonuses
"... in the next few weeks we will introduce legislation to end the reckless culture that puts short-term profits over long-term success. It will mean an end to automatic bank bonuses year after year. It will mean an end to immediate pay-outs for top management. Any bonuses will have to be paid over years, so they can be clawed-back if not warranted by long-term performance."
Riigghht... but how exactly?
How will Labour's long-term bonus arrangements differ from the long-term bonus arrangements already in place for top management in all real world city firms? Doesn't Darling know that top management's principal bonuses are almost always geared to long-term (ie 3-5 year) targets?
And how will the claw-back work exactly? And if short-term profits turn bad in the long-term, will companies be able to claw back the corporation tax they initially paid? If not, why not?
In reality, using the law to control bankers' bonuses doesn't have a prayer of working. At best, it will simply provide a boost to the off-piste remuneration industry. At worst, it will drive the bankers abroad (remembering that pre-Crash the City was contributing nearly £70bn pa to the Treasury's tax coffers - or more than the whole of VAT receipts this year).
An unambigous lesson from the 70s is that incomes policy does not work. Bringing the law into wage setting merely brings the law itself into disrepute*.
2. Fiscal Responsibility Act
"We must keep the public finances on a sustainable path. The long-term health of our economy depends on it. That is why we will introduce a new Fiscal Responsibility Act to require that the Government reduces the budget deficit year on year, ensuring that the national debt remains sustainable in the medium term. But we need to do that rationally, in a way that is right for the economy, not driven by dogma."
Ah well, rationality vs dogma. A big welcome back to the strawman.
But a Fiscal Responsibility Act? Given our long-standing enthusiasm for fiscal rules, surely we should welcome that?
No. We certainly want a stated medium term fiscal strategy, complete with rules (including the Third Fiscal Rule eg see here). But bringing the law in would muddy the waters catastrophically.
What would happen if the government failed to hit its legislated fiscal targets? Would the Chancellor go to jail? Would there be a big fine? Who'd pay it? More to the point, who'd pay the lawyers to conduct the five years' worth of hearings?
No, the consequences of failure should continue to be financial (via the market reaction), and of course, political.
Once again, bringing in the law would inevitably bring it into disrepute.
What is it with Labour? Do they really believe the answer to everything is more laws? Do they really believe you can legislate away child poverty, "irresponsible" bankers bonuses, and profligate politicos?
Somehow, you'd think that a government whose Attorney-General has been busted for breaking her own law would be rather more circumpect.
Thank God they're finished.
*Footnote - What would we do about banker bonuses? Nothing. We have no idea what bankers should be paid. But we would break up the megabanks into their high street and investment banking components, and make it crystal clear that our taxpayer guarantee only applies to high street bank deposits. And the high street banks would be heavily constrained in terms of the risks they could run.