Governor of the Bank of England tells TUC conference that bankers and policymakers were responsible for the financial crisis – and unions are 'entitled to be angry' about it

This article is more than 10 years old

This article is more than 10 years old

Mervyn King, the governor of the Bank of England, today expressed his anger at bank bonuses and pay and declared that banks should "never again" be allowed to get into a state where they damage the prospect of recovery.

In a well received speech to the TUC in Manchester, King sympathised with delegates and the wider public at their anger at the bonus culture that still pervades the banking sector.

King, the second Bank governor to address a TUC conference, placed the blame squarely on the financial sector for the economic crisis of 2008, claiming that the structure of financial sector bonuses had encouraged excessive risk-taking.

And he admitted that the Bank of England, along with the financial sector and other policy-makers, had let go of the steady growth, low inflation and low unemployment that "was in our grasp".

"We let it slip," he told delegates. "We that is, in the financial sector, and as policy-makers – not your members, nor the businesses and organisations around the country which employ them."

King signalled his personal support for union calls for a government clampdown on tax loopholes and more jobs in HM Revenue and Customs to collect taxes owed to the Treasury.

But he also warned unions who opposed the coalition's spending cuts needed to come up with a "clear and credible" way to reduce the budget deficit.

King attracted a warm reception from a packed hall in central Manchester when he made clear his own views on bank bonuses.

"I understand the strength of feeling," he said. "I'm surprised it often hasn't been expressed more deeply. I certainly understand that."

King, who has been given new responsibilities for governing the regulation of the financial sector, said Britain's financial systems needed "radical reform" to avoid a repeat of the crisis that put both the economy and union members' livelihoods at risk.

Improved regulation would mean that banks that "get it wrong" in the future "must be allowed to fail", to avoid ordinary depositors or taxpayers paying the price, he said.

He told the TUC conference that most people in the country did not object to others earning more than them – even a lot more – provided they understood why, and saw the contribution the better-paid had made.

In comments that prompted loud applause, King went on: "But when large bonuses are paid to people in organisations that only two years ago were bailed out by the taxpayer, it becomes somehow harder to understand."

But he said the country needed to address the root cause of why banks felt they were able to pay such large bonuses to take risks rather than ban payouts.

In a question-and-answer session, King rejected calls from a delegate for the private sector to have a pay ratio, in line with the coalition government's decision to set a public sector ratio which would ensure no one earned 20 times more than the lowest paid worker.

King, who earns a salary of £302,885 but has refused a pay rise this year and next, told delegates: "I fear if banks want to pay this money to individuals, they will find a way of doing it," he said.

He rounded on banks for making large payouts by "using the implicit guarantee" that the taxpayer will take large risks.

"Hence they feel they can encourage people to take excessive risks," he said.

King stressed that reform of the banking system needed to go hand in hand with a rebalancing of the British economy.

He told the TUC, which is lobbying against the speed and scale of cuts, that it was "perfectly reasonable" to debate the precise speed of deficit reduction, on which he said there was "room for debate".

But he stressed that those who argue that "we shouldn't cut, we shouldn't reduce the deficit" needed to provide a more detailed alternative.

He said he believed it was vital the government set out a clear plan for reducing the deficit and warned the UK could otherwise have suffered the kind of woes seen in Greece.

"As a result of a failure to put such a plan in place sooner, some euro-area countries have found – to their cost – a much more rapid adjustment being forced upon them," he said.

"We have to find a way over a number of years to reduce the deficit. And it's no good just making vague statements that at some point in the future we will get round to it. If you want to oppose what is being done, I think the onus is on those to come up with an alternative – a credible, a convincing plan – a better way to reduce the deficit. That's for you to engage them."

King delighted the Public and Commercial Services Union by agreeing that the union's calls to close loopholes that allow tax avoidance of an estimated £120bn and boost the number of HM Revenue and Customs collecting taxes were "irresistible".

King told Janice Godrich, the president of the PCS, that the union's arguments were "persuasive": "The way you put it makes it irresistible that one should agree with it."

King's attendance led to a walkout of just a handful of delegates.

Delegates from the Rail and Maritime Union switched the television channel on their conference stand to children's channel CBeebies to express their disgust.