MercoPress. South Atlantic News Agency

PM Brown tells banks “penalties” for “irresponsible risks”

Brown: “No rewards for failure”

Prime Minister Gordon Brown has insisted that there must be “no rewards for failure” in Britain's banks. His comments came as the UK Treasury launched a long-term review of City remuneration policies, amid public anger at reports that banks are planning to pay hundreds of millions in bonuses to senior staff despite their massive losses over the last year.

Speaking to an audience of economists in London, Mr Brown promised that he would "sweep aside" the short-term bonus culture in banks and ensure that rewards are provided only for long-term sustainable success, with "penalties" for those who take irresponsible risks. The policy of "no rewards for failure" would be pursued "aggressively", said the Prime Minister, adding that banks in which the state now holds a majority stake would pay no bonuses to board members and no dividends to shareholders this year. Mr Brown said: "I believe, as a society, we should support hard work, effort, enterprise and responsible risk-taking. We should not in any way condone, but should punish, irresponsible and excessive risk-taking." He said the Government's actions were intended to show that "the old short-term bonus culture is gone; that there are no rewards for failure, but penalties for failure; that in the future there must be rewards for success - but long-term sustainable success and not just short-term gains. "In the present and future, the no rewards for failure policy will be pursued aggressively." Leading City figure Sir David Walker has been asked by Chancellor Alistair Darling to examine what went wrong in the management of banks to spark the credit boom-fuelled recession. His review will investigate "failures of corporate governance by bank boards in several areas", including encouraging risk-taking with bonuses, the skill and experience of directors and failures of monitoring. Chief Secretary to the Treasury Yvette Cooper said that executives at banks dependent on taxpayer support have a "moral responsibility" to consider forgoing any bonuses this year. Bonuses had been ruled out already for the boards of banks in receipt of Treasury support PM Brown's statements coincided with Barclays' bank announcement it was scrapping bonuses for its top directors and simultaneously launched a group-wide pay review. The bank on Monday announced a 14% fall in annual profits. Chief executive John Varley said the bank's executive directors would receive no bonuses this year, while payouts across the bank would be "significantly lower" than 2007. Barclays posted better than expected profits of £6.1 billion for 2008 as the row over payouts by banks propped up by the taxpayer continued to rage. Although Barclays has not used the Government's recapitalisation scheme - raising funds from the Middle East instead - it is likely to take part in other forms of public support to the struggling sector.