Monday, June 22, 2009

25%!?

I've just heard a chap on BBC's PM discussing the pay of Stephen Hester, the man who's going to be taking the helm at RBS. His pay package is immense, so immense in fact that it's easy to see why there's a fair bit of outrage about it. What interested me is what he said in defense of the high pay in the city, in particular that the city provides 25% of the country's corporation tax revenue, the other statistic that I've heard about is that it makes up around 10% of the country's GDP.

As far as I can see, the purpose of the financial sector is moving money around to the places where it is put to it's best use (I admit that's a gross oversimplification). I have to ask why such a large proportion of the nation's commercial activity needs to be devoted to this cause. Surely, if this task was done efficiently then it would be done at very little cost. If it's not being done all that efficiently, I would have to ask why such gigantic renummeration packages are essential for such a bloated and inefficient industry.

If there was some major added value to all this activity, I could accept it, but as far as I can tell, there isn't. Many companies are closing or have closed their defined benefit pension schemes, the funds for those already exisiting schemes are often in deficit and the public sector schemes of a similar nature are under huge pressure from groups like the Taxpayers Alliance and are frequently labelled unsustainable.

So then, what I'd like to know is: When you look beyond the statistics relating to size and profitablity, what is the point of the city and why do these people deserve such astonomical amounts of pay?

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