Political scandal takes heat off bankers

In the UK, for those in the thick of the financial crisis and its less charismatic cousin the recession, the parliamentary expenses scandal has provided some welcome respite.

Even worrying news yesterday, that Standard & Poor's had put a negative view on Britain's AAA credit grade, did not put much of a dent in what feels like day 73 of the coverage.

It is actually day 15 - still a remarkable length of time for the story to remain the lead of every TV news bulletin and nearly every broadsheet.

It has been a coup for the Daily Telegraph which has gone where its rivals claim they chose not to tread. It paid (£75,000 [$194,000] according to some industry gossip) for a leaked copy of every MP expense form submitted in the past five years.

As of yesterday, the Telegraph was claiming eight scalps. Five MPs, including the Speaker of the House of Commons, Michael Martin, will resign at the next election - due by mid-2010. Two other Labour MPs have been suspended from the party pending investigation and one has resigned as a minister.

For bankers and senior executives it will come as a great relief that the assault on MPs has diverted the public's wrath from their multimillion-pound bonuses and salaries. Instead the anger of the masses is fixed on the multithousand-pound embarrassment of expenses claimed by MPs in relation to their second homes.

To an outsider it looks like British MPs' salaries were too low. But the Government was too scared to face up to the public disapproval of overhauling the pay scale.

Instead they opted to indulge in a kind of nudge-nudge wink-wink approach to the expenses system which resulted in many MPs treating the upper limit for claims as a kind of automatic top-up to their salary.

Once the MPs started treating expenses as part of their pay packet they had no trouble spending them on the kind of things that well-paid people spend their money on - big TVs, massage chairs, moat cleaning and duck islands for their ponds.

Gordon Brown, looking genuinely out of touch with public opinion, fell into the Telegraph's trap and brushed off the initial news story with the expectation that it was all going to be a storm in a tea cup.

But aside from the bourgeois excess of a couple of born-to-rule Tories and a couple of dodgy looking claims involving mortgages that did not exist, or were already paid off, it looks like most MPs were not abusing the system. It was just a lousy system.

The base salary for a backbench MP is about £64,000. To most of us it looks good (especially in New Zealand dollars) but by the standards of the central London elite it is not much at all, especially when you consider MPs are expected to run two homes - a central London flat and a house in their constituency.

Certainly in the financial sector - where pay packets still dwarf those of the politicians - there is some quiet sympathy for the MPs.

It is likely to stay quiet though. The bankers are smarting from the way Brown turned on them to make political capital. He wasn't complaining, they point out, in 2005 when as Chancellor of the Exchequer tax revenue from the booming finance sector was making him look an economic wizard.

The scandal also gives the banks and corporates time to address their own pay dilemmas out of the spotlight.

This week the almost unprecedented case of investors voting down oil company Shell's executive pay plan - a big victory for small shareholders - failed to make a media splash outside of the business pages.

Shell will have to go back to the drawing board, which is exactly where the big investment banks are as they work out how they will pay their traders and deal makers.

Over the past decade salaries in the finance sector remained static but the variable pay component (the bonuses) grew exponentially as the market boomed.

Those seeking to justify this - or at least explain it - sometimes make the comparisons with top sports people. Where there are only a few people with talent to perform at a certain level the market will reward them.

But the sporting comparison also highlights a flaw in the banking bonus system. If a top football team were to introduce a bonus system which rewarded the players purely for the goals they scored, it would be great news for the centre forward but the goalie and the defenders might feel a little aggrieved.

Inevitably we would start to see all the players pushing forward, hopelessly out of position as they attempted to score. While it might initially be a bit of a spectacle for fans it is likely that interest would wane and the game as we know it would collapse.

Some might say that happened in banking. The bonus culture killed off the defensive line. There was no provision for rewarding those that might have saved their company money by knocking down a deal if it looked too risky.

In the end, for those not opposed to rewarding excellence, outrage about pay packets is reserved for those who collect the rewards while questions remain about their excellence.

Perhaps that is also what is driving outrage at the expense claims of the British MPs. If the public were happy with the service they were getting from their Parliament then they might not begrudge their leaders a big TV, or even a clean moat. But right now in Britain the public are not happy at all.

* Liam Dann is in the UK on the Newspaper Association's Cardiff Fellowship, with support from the British High Commission and Air New Zealand.