Pressure on Sir Fred Goodwin to surrender a substantial proportion of his £693,000 annual pension intensified yesterday when Labour’s deputy leader signalled that the government was prepared to change the law to recover the cash.
Harriet Harman said the former Royal Bank of Scotland chief executive had received “money for nothing” when he quit the bank last October and vowed: “The government will take action.”
The scale of Sir Fred’s pension pot emerged last week when RBS announced the biggest loss in UK corporate history, having amassed debts of £24.1 billion for 2008.
Sir Fred, 50, receives about £13,000 a week after his pension pot was doubled to £16 billion as part of a severance deal.
But finance experts yesterday suggested the true value of his pension pot could be as much as £32.7 million.
He also continues to receive personal security provided by RBS – which the shadow chancellor, George Osborne, yesterday said should cease, as it was no longer appropriate for the service to be provided at taxpayers’ expense.
Ms Harman picked up on earlier demands from Gordon Brown, the Prime Minister, for Sir Fred to voluntarily repay part of the pension, which he has so far refused to do.
Sir Fred said the deal was signed off by Treasury minister Lord Myners last October.
The peer, a former senior City figure who insists that he believed Sir Fred was getting only what the bank was legally required to pay, faced mounting pressure himself yesterday.
Mr Osborne said the minister’s future was “hanging by a thread” and challenged him to either produce a convincing explanation of his role or resign.
The shadow chancellor said he backed the use of “any legal measure” to recoup part of Sir Fred’s pension, but accused ministers of acting too late and trying to divert attention from their own responsibility.
Ms Harman’s threat came amid reports that Lloyds Banking Group, which is currently 43 per cent in public control, had been told to rethink proposed staff bonuses totalling about £120 million before asking the government to underwrite billions of its “toxic” assets.
Ms Harman said in relation to Sir Fred’s pension:
“The Prime Minister has said it’s not acceptable, therefore it will not be accepted. It might be enforceable in a court of law but it’s not acceptable in the court of public opinion, therefore the government will take action.” Ms Harman refused to say how the government, which holds a 68 per cent stake in RBS, would recover the cash. But she said Sir Fred’s deal was “being crawled over by the lawyers”.
She added: “The Prime Minister has been quite emphatic about this. He (Sir Fred] is not going to be better off by £650,000 a year as a result of bringing a bank to the brink of collapse, threatening jobs and needing public money to be brought in.”
However, there was scepticism over the government’s ability to pass a new law to effectively take revenge on Sir Fred, who has become the nation’s principal hate figure for the global banking crisis.
John Quigley, head of employment law at solicitors William Sturges, said the severance deal was a private contractual matter between RBS and Sir Fred, and would be difficult to scrap in the absence of him being found guilty of a criminal offence.
Mr Quigley said: “I think it’s almost certain there must have been a compromise agreement between RBS and Sir Fred. That is a contract between the company and him. It is a private matter, and ordinary contract law applies. It’s very difficult to get out of that.
“There is all this talk of legislation, but it seems a hugely heavy-handed approach. It seems the government is trying to make an example of somebody rather than trying to recover money.”
Vince Cable, the Liberal Democrats’ Treasury spokesman, also questioned whether a change in the law was practical.
Ministers ‘had other options for HBOS’
THE controversial takeover of HBOS by Lloyds TSB was under renewed scrutiny yesterday after it emerged that alternatives were considered by the UK government.
A secret dossier apparently shows other proposals that could have safeguarded HBOS as an independent bank – albeit one requiring a temporary taxpayer-funded bail-out – were under consideration at the time of the Lloyds takeover.
Gordon Brown, the Prime Minister, has always insisted the takeover was the only option to save HBOS, and last month said the government merely assisted in a deal wanted by the shareholders of both banks.
The takeover was completed in January after Lord Mandelson, the Business Secretary, agreed to set aside competition rules. The merged institution, known as Lloyds Banking Group, now controls more than a quarter of UK mortgages and personal accounts.
It was reported yesterday that copies of the takeover papers still existed. Vince Cable, the Liberal Democrats’ Treasury spokesman, called for the papers to be published to shed light on the “murky dealings” surrounding the takeover, which generated substantial concern in Scotland.
Mr Cable said: “Now the takeover has gone through and we know the extent of HBOS’s losses, there would seem to be no longer any need for secrecy.”
Stewart Hosie, the SNP’s Treasury spokesman, said the UK government’s involvement in the deal had “long aroused concern”.
“The clear evidence from the Financial Services Authority that there was an alternative throws even more doubt on government claims it was the only option,” he said.
Goodwin the scapegoat is godsend for government
The government clearly does need people to focus attention away from them, writes Mark Borkowski.
If they can, in some way, have a witch-hunt, not just on Fred Goodwin but other members of the banking community who are also sitting on pretty hefty pensions, that clearly helps.
We all want a scapegoat. Unfortunately, scapegoats turn out to be just a passing focus of attention.
In these situations, Sir Fred needs a meaningful dialogue and he needs to find some media friends. But nobody in the media is going to befriend this person because he is going to be vilified.
He is making it very difficult for the banks to recover trust. I think that is something that must have the government tearing their hair out.
No-one believes Sir Fred is the single reason for the downturn. It would be foolish to focus on him, but we do need to see certain people in that position feeling pain. After all, the average bloke in the street is probably fearing he’s going to lose his job. It’s a godsend to the government, really.
If this goes on, Goodwin will continue to be the conversation. But we all know that something in the news that is focused on one man will eventually disappear. The public anger will still be focused on the government.
No matter what Gordon Brown says about global economic considerations and the subprime market in America, the economy will still be a millstone around the government’s necks.
• Mark Borkowski is a public relations, media commentator and blogger at: www.markborkowski.com