Viewing cable 09LONDON2225, CHANCELLOR DARLING ON BANKERS’ BONUSES, UK

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Reference ID	Created	Released	Classification	Origin
09LONDON2225	2009-09-24 16:04	2010-11-30 23:11	CONFIDENTIAL//NOFORN	Embassy London

VZCZCXRO3615
PP RUEHAG RUEHROV RUEHSL RUEHSR
DE RUEHLO #2225/01 2671616
ZNY CCCCC ZZH
P 241616Z SEP 09
FM AMEMBASSY LONDON
TO RUEHC/SECSTATE WASHDC PRIORITY 3597
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 02 LONDON 002225 

SIPDIS 
NOFORN 

NSC FOR FROMAN 
TREASURY FOR MURDEN/SOBEL 

EO 12958 DECL: 09/24/2019 
TAGS ECON, EINV, PGOV, AGMT, UK 
SUBJECT: CHANCELLOR DARLING ON BANKERS’ BONUSES, UK 
RECOVERY, AND LABOUR PROSPECTS

Classified By: Ambassador Louis B. Susman for reasons 1.4 (b) and (d).

¶1. (C/NF) Summary: Chancellor of the Exchequer Alistair Darling told the

Ambassador during his September 23 introductory meeting that G20 

governments must continue to implement stimulus packages and avoid 

complacency. Darling warned that if banks paid out large bonuses in

2010, they could provoke a political backlash and draconian legislation

that would have unintended consequences. Governments needed to pressure

the banks to exercise restraint. The Chancellor was cautiously optimistic

that the UK economy would return to growth by year-end, but worried that

the recovery remained fragile. Darling had sharp words for the 

Conservatives, who were campaigning on budget cuts, but unwilling to say 

what they would cut. He said that Labour was losing hearts and minds more

than the Conservatives were winning people over. The Ambassador raised

the issue of VAT charges on the London Embassy project and subsequently 

briefed U/S Kennedy by phone. End Summary. Recovery is Fragile and Banker

Bonuses 

Radioactive
--------------------------------------------- ----- 

¶2. (C/NF) The Ambassador said that the President was committed to a strong

framework for growth at Pittsburgh and asked the Chancellor for his 

expectations from the G20 summit. Noting he was traveling to Pittsburgh

early September 24, Chancellor Darling stressed the importance of 

continuing stimulus packages and avoiding complacency. Unemployment

levels across the developed economies were high, continuing to rise,

and risks to growth remained real. He cited IMF predictions that Germany

could re-enter recession and expressed concern about the potential for

higher oil prices. He noted that high public sector debt levels constrained

governments, room for maneuver. On pay and bonuses, Darling cautioned that

banks needed to exercise restraint. With spring UK elections in mind, he

said that if banks announced large bonuses early in 2010, the pressure for

draconian legislation would be politically irresistible. He expressed 

concern that a political backlash could produce legislation that had 

unintended consequences and cited Sarbanes-Oxley as an example. He said

governments needed to persuade bankers not to do something stupid in the

coming months. Cautious Optimism on Recovery
----------------------------- 

¶3. (C/NF) On the UK economy, the Chancellor remained cautious, but expected 

a return to growth by the end of the year. But he cautioned that it would be

&foolish to announce victory.” He said that the UK’s heavy dependence on

services, and especially financial services, meant that UK growth would 

lag behind other economies and depend on their growth. He added that if 

businesses and the public see recovery, they will spend. U.S. Committed to

Address Climate Change
--------------------------------------- 

¶4. (C/NF) The Chancellor asked about the prospects for climate change 

legislation. The Ambassador referred to the President’s September 22 speech

at the UN Climate Change Summit and highlighted his commitment to address

climate change through strong administrative measures and through legislation.

Noting the determination of White House and Congressional leaders, the

Ambassador expressed confidence that Congress would pass legislation.

Labour Losing Hearts and Minds
------------------------------ 

¶5. (C/NF) Responding to a question on the UK election, Darling said that

the Conservatives may think they can run a campaign on cutting spending

without specifying what they are going to cut, but this will become less

and less tenable. He said it is in the nature of the opposition to criticize

without offering up specifics. In the meantime, he said that Labour would

&fight like hell for re-election.” Darling was sanguine about Labour’s

challenge ) &the problem is not that the Conservatives are winning hearts

and minds, rather that we are losing them.8 He said that Labour needed to

regain the confidence of the public that they can win. VAT Exemption on

New Embassy Unlikely
------------------------------------- 

¶6. (C/NF) Ambassador raised the new embassy project at Nine Elms, noting

that the USD 1.2 billion project would spur redevelopment of a blighted 

area and create jobs. He said that as a matter of principle, the UK should

not impose value-added tax on the construction of a chancery building. 

Darling responded that the government could not exempt the project from VAT,

citing the recession, tight budget and elections. Ambassador noted that

construction was projected
LONDON 00002225 002 OF 002
to start in 2012 and urged the Chancellor to work with him to find a 

solution.
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