Bankers’ pay should be a blueprint for the rest of UK

Bankers should be an example to us all. With reporting season kicking off Tuesday, we can expect the usual brouhaha over how much those greedy bankers are getting.

But maybe it's worth pausing a moment to take a lesson or two from the world of high finance.

Dimitri Vervitsiotis | Photographer's Choice RF | Getty Images

True, official statistics show that since the start of the banking crisis seven years ago, financial sector workers have enjoyed a 27 per cent wage increase, compared with 12 per cent for the whole country.

True, one think tank this week, reported that the number of people in the UK in low-paid jobs has hit record levels. And true, that just 10 days ago 90,000 trade unionists marched through London demanding "Britain Needs a Pay Rise".

But the bubbling controversy about bonuses could be missing a really good point: namely, that Britain's other workers could use the way banks divvy up their profits as a blueprint, rather than a dartboard.

Consider the lesson from that favourite of Islington saloon bars, the economist Thomas Piketty, for a start.

In his weighty tome, "Capital in the 21st Century", Piketty argues that we are in an era of "patrimonial capitalism", where owners of capital grow richer faster than workers who rely on income.

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Private wealth in the UK, his book says, has grown from three times national incomes in 1950, to more than five times today. We're heading back to levels of inequality not seen since the aristocratic heyday of the 19th Century.

Although Piketty doesn't say it, investment banks are one of the few businesses that have bucked this trend - football clubs are another - precisely because the workers continue to take the lion's share of the money made.

The irony is that the division of profits at a bank - between bankers and shareholders - is a fairer distribution of wealth, on Piketty's definition, than observed across other parts of corporate life - or indeed society.

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Now, that may not please everyone - the Bank of England's deputy governor for one. Sir Jon Cunliffe took issue with the unfair distribution of profits between bankers and shareholders this month. In the decade to 2007, the Bank calculated, profits attributed to owners of UK banks equated to roughly 75 per cent of the amount paid to staff. Today, shareholders get 2p for every pound paid to the bankers. Cunliffe says it is simply not sustainable and "in the new world, paybills may have further to adjust".

Granted, the ratio is excessively skewed at the moment by conduct penalties, but the principle that bankers have long had the owners of capital over a barrel is one that could be applauded - if you are a believer in greater fairness.

As Piketty says, unless there is greater parity between rate of return on capital and rate of growth of output and income – then the gulf of inequality will widen as fast this century as it did in the last – an outcome - he warns, will undermine modern democracies.