Top City boss: Bonuses are good for Britain

Leading City boss Lord Griffiths has launched a defiant defence of huge bonuses.

The vice-chairman of US investment bank Goldman Sachs said banks should not be ashamed of rewarding their staff.

The Conservative peer, a former adviser to Margaret Thatcher, also warned the Government that attempts to rein in bonuses will only result in banks leaving the City and causing huge damage to the British economy.

"If we said we're not going to have as big bonuses or the same bonuses as last year, I think then you'd find that lots of City firms could easily hive off their operations to Switzerland or the Far East," he told an audience at St Paul's Cathedral. His defence of City pay came as a new forecast predicted bonuses will rise by 50 per cent this year to just over £6billion, the fourth highest on record.

Lord Griffiths, chairman of the Archbishop of Canterbury's Lambeth Fund and Christian Responsibility in Public Affairs, dismissed criticism of the vast gap between society's poorest and best off, saying: "We have to accept that inequality is a way of achieving greater opportunity and prosperity for all."

Goldman staff are in line for average pay packages in excess of £425,000 this year, with many receiving multi-million-pound deals, following soaring profits. Although the bank received no money from the UK taxpayer it was propped up with a $10 billion injection from the US Treasury in October last year, which it has since paid back.

Speaking on a panel discussing financial regulation and morality, Lord Griffiths added: "We should think about the medium term common good, not the short term common good and make sure that going forward we at least have one cluster of industry here in London — the financial sector.

"We should not be ashamed of offering compensation in an internationally competitive market to ensure that businesses stay here and employ British people."

He added that it would be next to impossible for regulators to distinguish between banks taking excessive risks or simply responding to market conditions.

But his words were in direct contradiction of a warning from Bank of England Governor Mervyn King, speaking to business leaders in Edinburgh last night.

He said that without sweeping reforms of the banking system "we shall bequeath to future generations a serious risk of another crisis even worse than the one we have experienced."