CBI head says banker bonuses would be "toxic, arrogant and out of touch"

Richard Lambert, the outgoing Director General of the Confederation of British Industry, has called for an end to "the dialogue of the deaf" between bankers, politicians and the public and has encouraged bankers to abstain from "toxic" bonuses at a time of public sector cuts.

Mr Lambert said, "The combination of pay freezes and job losses in the public sector with large bonuses in the City would be toxic in the extreme.

"This exceptional combination of circumstances will require exceptionally sensitive handling, preferably with the major global institutions acting collectively when it comes to compensation matters, and resisting the temptation to poach disaffected mega stars."

He added that, "carrying on with business as normal would seem arrogant and out of touch, and further erode public trust, making it harder to defend against clumsy and counter-productive political intervention."

As well as calling for restraint on the part of bankers, Mr Lambert also said that politicians should stop demonising bankers by using words such as "casino", an obvious reference to Liberal Democrat Business Secretary Vincent Cable, who has been notable for his anti-banker rhetoric.

The CBI head said that he now welcomed the Coalition government's Independent Commission on Banking, after having been initially sceptical of the idea.

"When the Coalition Government launched its Independent Commission on Banking in the summer, I thought this was a bad idea. The Commission was going to ask fundamental questions about the structure of banks, but was not due to report until the autumn of 2011 - prolonging the clouds of uncertainty which were already hanging over our banks. But I've changed my mind, for three reasons.

"The first is that its preliminary issues paper, published last month, shows that under the chairmanship of Sir John Vickers the Commission is going about its task in a thoughtful and balanced way. The second is that there remain big questions still to be resolved, with a lot of important people in the UK giving very different views about what went wrong, and what needs to be done to put things right.

"And the third is that the Commission intends to give a pretty clear idea of where it's heading in the Spring, which means the banks won't have too long to wait to get the general sense of direction."

Mr Lambert said that he was opposed to the idea that banks should be separated into their investment and retailing divisions in order to prevent a catastrophe in the investment banking arm affecting the savings of people with accounts in the retailing arm.

Such a division would have done little to avoid the banking crisis of 2008, Mr Lambert argued, pointing to Ireland and Iceland of examples of where retail banks had collapsed due to losses made "the old fashioned way" and to Lehman Brothers, which although it did no retail lending still had a massive impact on the world when it collapsed.

Mr Lambert is due to step down as head of the CBI in early 2011.