Darling Asks Four British Banks to End ‘Automatic Bonuses’

By Gonzalo Vina and Robert Hutton

Sept. 28 (Bloomberg) -- Chancellor of the Exchequer Alistair Darling today begins an effort to crack down on bonus payments made by Britain’s biggest banks to end what he calls “greed and recklessness” in the financial system.

Darling told the ruling Labour Party’s annual conference that he’s weeks away from proposing legislation imposing higher capital requirements on banks with pay policies that regulators deem too risky. He also will meet directors of Britain’s four biggest banks, asking them to change the way they compensate staff before the new law is enacted, his office said.

“Let me assure the country and warn the banks that there will be no return to the business as usual,” Darling said in his speech today in Brighton, England. “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.”

Prime Minister Gordon Brown’s government is attempting to shore up support among voters by attacking the practices it blames for causing the worst recession since World War II. With the next election due by June, Labour’s support is tied with the Liberal Democrats, the third-biggest party, 15 points behind the Conservative opposition, a ComRes Ltd. poll today shows.

Meetings Scheduled

This week, Darling will speak to Richard Broadbent, chairman of Barclays Plc’s remuneration committee, along with Colin Buchan of Royal Bank of Scotland Group Plc, Mark Moody- Stuart of HSBC Holdings Plc and Wolfgang Berndt of Lloyds Banking Group Plc. His proposals are based on an agreement among leaders of the Group of 20 nations last week.

Brown yesterday told the BBC the proposed Business and Financial Services Bill will “ban the old bonus systems.” He also pledged a Fiscal Responsibility Bill that would require future governments to cut the deficit.

“I believe the public understand that difficult decisions will be needed,” Darling said today. “Tighter spending doesn’t mean a return to Tory dark ages. It does mean a determination to cut waste, cut costs and lower priority budgets.”

Those steps are meant to reassure bond investors that the Treasury is serious about reducing the deficit, which it expects to surpass 12 percent of gross domestic product next year, the most in the G-20. That forecast prompted Standard & Poor’s in April to threaten a downgrade for Britain’s AAA credit rating.

‘Reassurance’ from Treasury

“What you will get, as the chancellor has made very clear to you, in the pre-budget report is greater clarity -- greater reassurance and a demonstration that what we are prepared to do is commit ourselves to fairness and protection of frontline services,” Business Secretary Peter Mandelson told BBC radio.

He said regulation of banks should have been “more intrusive” and that the U.K. depends too much on financial services and should stimulate other parts of the economy.

Conservatives questioned whether the government, which spent the first half of the year insisting that no spending cuts were needed, is serious about reining in the deficit.

“The idea that Gordon Brown can reinvent himself as the guardian of the nation’s finances after doubling the national debt and spending the whole year opposing anyone who said that borrowing was getting out of control is the latest attempt to treat the public like fools,” said George Osborne, the Conservative lawmaker who speaks on finance.

Brown also is seeking to reassure Labour supporters that he’s the right person to lead the party into the next election, which must be called by June 2010. The ComRes survey in the Independent newspaper found voters said they preferred every one of the possible alternative Labour leaders to Brown.

‘Last Chance’

“This is the last chance for the Labour Party to go into an election with a new leader,” said Ivor Gaber, professor of political campaigning at City University. “If Brown is seen to have a good conference, Labour members of Parliament may shrug their shoulders and let him continue. If he has a bad conference there is still time to elect a new leader.”

There are signs of unease about Brown’s leadership coming from his own Cabinet. Darling compared the party to a losing sports team when he spoke to the Observer in an interview published yesterday.

“Their heads go down, they start making mistakes, they lose the will to live,” Darling told the newspaper. His office confirmed the comments, saying that Darling had immediately added that the mood at the top of the party had been “more buoyed up and enthusiastic” in recent weeks.

Brown said he wouldn’t step aside, denying problems with his health or that he’s using painkillers or antidepressants.

“This is not a battle about me,” Brown said in a question and answer session with party activists yesterday. It is a “fight for the values” Labour believes in, he said.

Poll Readings

The ComRes survey of 1,003 adults showed Labour and the Liberal Democrats both with the support of 23 percent of voters compared with 38 percent for the Conservatives. No error margin was given. At the 2005 election, Labour won six times as many parliamentary seats as the Liberal Democrats.

Potential challengers to Brown yesterday remained loyal to the prime minister. Climate Change Secretary Ed Miliband said Labour “can triumph over adversity.” Education Secretary Ed Balls called for the party to unify and fight for its values against the Conservatives.

“We want more fighters not quitters,” Balls told BBC radio yesterday. “We can win this election. If we believe in ourselves and have a go, we can go out and win this election.”

To contact the reporter on this story: Gonzalo Vina in Brighton at gvina@bloomberg.net; Robert Hutton in Brighton at rhutton1@bloomberg.net