Duncan Smith: RBS bonus veto would have caused chaos

Cabinet minister Iain Duncan Smith has said there would have been "chaos" if the government had overruled RBS over a £963,000 share bonus for its boss.

"Nobody would be happier than" ministers if Stephen Hester declined it - but it was his decision, he said.

Labour has vowed to force a Commons vote calling for Mr Hester to be stripped of the bonus.

Ministers say intervening would put tens of billions of pounds of public money at greater risk.

Mr Hester was appointed as the Royal Bank of Scotland's chief executive at the end of 2008 to replace Sir Fred Goodwin, after the bank had to be bailed out by the government, which owns 82% of the bank.

The bank said the bonus was to recognise his "substantial progress in making RBS safer, rebuilding performance in many businesses and improving customer service and support".

'Up to him'

But news of the bonus - to be paid in share options currently worth £963,000, deferred for three years - has annoyed people across the political spectrum.

Work and Pensions Secretary Mr Duncan Smith told BBC One's Andrew Marr Show it was for Mr Hester to decide whether or not to take his bonus.

"Nobody would be happier than the government if he took such decisions. But it's up to him."

He argued that Mr Hester's contract, drawn up under the previous Labour government, meant "the board takes the decision on this".

"If we didn't like that, of course the only option would be to get rid of the board. If you do that, imagine what would happen in the banking sector and imagine what would happen to RBS. You would have chaos.

"Remember RBS's balance sheet is as large, if not slightly larger, than the GDP of the UK. What would that do to ordinary people?"

'Politically inconvenient'

His cabinet colleague, Lib Dem Chief Secretary to the Treasury Danny Alexander, was asked on the BBC's Sunday Politics whether the government had considered stopping the bonus.

He said they had given RBS a "strong steer" that they had wanted a big change - and had "looked at all the options" to use their influence. The bonus was less than half what it had been last year, he added.

But he said while it had been "politically less convenient" for the government, the decision had been taken that having the government take direct control over RBS posed greater risks for the "tens of billions" of pounds of taxpayers' money tied up in the bank.

Asked if the RBS board had indicated they would resign over the issue, Mr Alexander said he had not spoken to members of the board directly because the taxpayer's stake in RBS is actually overseen by the arm's length body, UK Financial Investments.

"The view that we took was that by ripping up the terms of the relationship... we would put at much greater risk the very serious amounts of taxpayers' money that are tied up in this bank."

'Loathe to act'

Labour reject the government's claims that their hands were tied by Mr Hester's contract.

Shadow Business Secretary Chukka Umunna said on Friday that was "nonsense" - because bonuses were agreed on a rolling annual basis.

And Shadow Work and Pensions Secretary Liam Byrne told the BBC's Sunday Politics that a bonus "might be appropriate but certainly not a bonus on this kind of scale".

Asked if the government should block it, he said: "Under these circumstances, yes, I believe that would be appropriate."

"The government should be saying to the board, look, we helped put this board in place because the taxpayer owns the company, surely you must see that a bonus on this kind of scale is just not appropriate right now?"

Scotland's First Minister Alex Salmond blamed both Labour and the Conservatives for the situation.

He said: "I believe the Westminster parties are culpable - Labour made this arrangement in the first place.

"The Conservatives, after calling on shareholders and private companies to do something, seem loathe to do something themselves."