Brown to Allow Regulators to ‘Tear Up’ Banks’ Bonus Agreements

Nov. 16 (Bloomberg) -- U.K. Prime Minister Gordon Brown’s government will this week announce plans to make some bankers’ bonuses illegal as it tries to clamp down on the risk-taking that helped stoke the financial crisis.

Regulators will be given “powers if necessary to tear up contracts that would result in payments being made that would cause instability,” Chancellor of the Exchequer Alistair Darling told the Sunday Telegraph in an article published yesterday. City Minister Paul Myners told Sky News that “if those contracts are written, they will be voided under law.”

Brown, who has trailed in polls for almost two years and must call an election by June, will set out his goals for the next session of parliament with the Queen’s Speech on Nov. 18. The proposals will also reverse a plan to cut a tax break on childcare, allow consumers to make class-action lawsuits against lenders and require banks to have a plan for winding down operations if they run into trouble, The Sunday Times reported.

Brown’s Labour Party will have about five months to pass the legislation before the election interrupts Parliament. The Queen’s Speech will last about 20 minutes, half the length of last year’s address, the News of the World reported yesterday.

Myners said yesterday that he is “sure” the financial services bill will be passed.

“We’re not seeking to cap absolute levels of bonuses,” Myners said. “We want to make sure that bonus arrangements no longer contribute to excessive risk-taking” and that “we have a framework in which the taxpayer will never again have to step in and provide capital to support the banking industry.”

Bankers’ Warning

The opposition Conservatives dismissed Brown’s idea as “headline-chasing.”

“The public will be asking what this announcement means for the bonuses that are due to be paid this Christmas -- and the answer is nothing at all,” said Philip Hammond, a Conservative spokesman on financial affairs, in an e-mail yesterday. “It is clear that Labour prefers to talk about laws that would only be effective after a general election.”

The British Bankers’ Association warned Brown that new proposals shouldn’t discourage banks from coming to Britain to expand or set up business.

“We clearly need to see the detail of these proposals but we would be wary of any actions which set the U.K. at a disadvantage, discourage international businesses from coming here and make it more difficult to attract, reward and retain high quality staff,” according to an e-mailed statement.

Opinion Polls

The opposition Conservatives increased their lead to 14 percentage points from 11 points a month ago, according to a YouGov Plc poll published in the Times yesterday. The Labour Party had the support of 27 percent of Britons, the Conservatives had 41 percent and 18 percent of voters backed the Liberal Democrats.

Speaking in a podcast recording from Nov. 14, Brown said he’s trying to prevent taxpayers having to foot the bill for any future banking bailout.

“This means a transformation of the way the financial sector is policed, with banks themselves and not the taxpayer made to pay for bank failings,” he said.

Another poll yesterday in the Independent on Sunday showed that 71 percent of Britons support an end of combat operations in Afghanistan within the next year. As of Nov. 8, 232 British troops had died in Afghanistan since 2001.

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net.

To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net