How Rachel Reeves learned to love bankers

Rachel Reeves defended her decision not to restore the cap on bankers’ bonuses to ITV News' Robert Peston, insisting stronger rules are in place to prevent risky behaviour in the City

I wanted to explore with the shadow chancellor Rachel Reeves the implications of Labour’s decision to back the permanent removal of the cap on bankers’ bonuses.

The best way to do this was to give her a concrete example.

So I pointed out that under the now abolished cap system - which limited maximum bonuses to 200% of salary - bankers earning £1 million would be eligible for a bonus of £2 million.

Why on earth would a banker need more than that £3 million pay package? And why would a Labour government want to enable my fictional banker - let’s call him Piers Starmer-Lover - to earn even more, ay £5 million, or £6 million or £10 million?

Reeves was not even slightly embarrassed or anxious about my question. She simply did some mental arithmetic - and said that on that £2 million bonus she as chancellor, were that to transpire, would pocket £900,000.

At a time when our creaking public services desperately need more cash, she’d love a bit of that. What chancellor wouldn’t want that income-tax revenue to fund the salaries of about 20 teachers or 30 nurses?

It’s her variation on Peter Mandelson’s feeling of intense relaxation about the filthy rich, during the original New Labour era.

But there is more to this dramatic repudiation of Labour’s hostility under Jeremy Corbyn to the extremes of wealth and income inequality than just a desire to squeeze every last drop of tax out of the economy without actually putting up taxes.

First, Keir Starmer’s Labour, like that of Tony Blair and Gordon Brown, has worked out that the UK doesn’t have many world-class, high-productivity clusters or industries, and financial services is that rarity.

Given Starmer’s “mission” priority to stimulate economic growth, it probably makes sense not to hobble the banks and the city as his first action if he becomes prime minister.

Second, Reeves seems persuaded that the lethal capacity of the City and banks to wreck the economy - as they did in 2007/8 through reckless lending and investing in the pursuit of mega bonuses - has been tamed by better regulation.

We’ll learn, possibly at our and their cost, whether this is wishful thinking. Because what New Labour learned, ultimately at the cost of keeping it out of office for 14 years, is that too much faith in the City is the short route to oblivion.

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