The Conservative-led coalition government has played its own
part in so-called banker bashing, not least in putting pressure
on banks to cut bonus pay and by stripping former Royal Bank of
Scotland boss Fred Goodwin of his knighthood as punishment for
his role in the bank’s decline during the credit crunch.

But while it has made political sense to pander to a public
annoyed about big pay at the top at a time of economic
stagnation and austerity, ministers have grown concerned that
too much negativity could drive away investment and reduce
much-needed tax income from executive pay.

“In recent months we’ve heard some dangerous rhetoric creep
into our national debate that wealth creation is somehow
anti-social, that people in business are out for themselves,”
Cameron will say in a speech to a business charity in London,
according to extracts released in advance by his office.

“We have got to fight this mood with all we’ve got. Not just
because it’s wrong for our economy … because it’s wrong for
our society.”

Cameron’s speech will highlight some of the work that big
business does to help society, pointing specifically to some of
the banks that came under fire during the financial crisis.

The government has been trying to rebalance the economy away
from financial services, while at the same time trying to
protect its banks from any adverse European Union regulations,
admitting that any economic recovery will still rely heavily on
a robust and growing financial sector.

“Frankly I am sick of this anti-business snobbery,” he will
say. “I see Barclays offering over 3,000 work experience
placements for pupils and I say that has got nothing to do with
cuts and everything to do with improving our country.”

His speech will come shortly after RBS, bailed out by the
previous Labour government at the height of the financial
crisis, updates investors on its 2011 performance.

RBS chief executive Stephen Hester waived his bonus this
year after coming under intense pressure from the government and
the media to do so.

The results are likely to stir up a debate over whether
banks, especially those backed by the taxpayer, are doing enough
to lend to small businesses and whether more should be done to
clamp down on executive pay.

Scotland’s nationalist government, which already controls some spending from its own parliament in Edinburgh, wants to hold a referendum in late 2014 on full independence that could spell an end to a 300-year-old union with England.

Cameron took his case for keeping the United Kingdom together to Scotland’s picturesque capital, arguing in a speech laced with sentimental historical references that Scotland was better off as part of the union.

“The union helps to make Scotland stronger, safer, richer and fairer,” he told business leaders, speaking against a backdrop dominated by Edinburgh’s stunning castle, perched on a craggy volcano and sporting both the Union Jack and Scottish colours.

“Of course, Scotland could govern itself. So could England, but we do it so much better together,” he said.

He warned Scotland would face an uncertain economic future alone – a contentious argument favoured by London’s politicians who are keen to protect the union.

Cameron met Scotland’s First Minister Alex Salmond, leader of the pro-independence Scottish National Party, to thrash out the timing and form of the referendum, but little was agreed.

Both men refused to budge on whether voters should be given Cameron’s preference of just one straight question on independence or Salmond’s desire for a second option of further devolution of powers from London.

Salmond, a tenacious political operator, appeared to have won a tactical advantage by hosting Cameron on his home ground while Cameron had to make the long journey from London.

As Salmond shook hands with Cameron, the event gave every appearance of talks between the leaders of two independent countries, but opinion polls suggest a big change of heart is needed for Scots to vote in numbers to go it alone.

SCEPTICAL VOTERS

On a blustery, bright winter’s day in Edinburgh’s winding cobbled streets, city workers and shoppers were largely sceptical about the nationalists’ cause.

“A few of my friends support Scotland becoming independent but I think that is just to show their patriotism,” said Dan McCormack, a 26-year-old customer services assistant at the Bank of Scotland, arguing that the SNP needed to do a lot more to convince voters of the economic viability of independence.

“I think independence would be wrong because the Scottish economy wouldn’t survive on its own.”

Cameron dangled the carrot that, if Scots rejected independence, he would look at what further powers could be devolved from London to Edinburgh, without giving any details.

That effort to outflank Salmond received a stinging rebuttal from the nationalist leader, who said Conservative governments had misled Scotland in the past with promises of greater powers.

“Fool me once, shame on you. Fool me twice, shame on me,” he told reporters after the meeting. “I don’t think Scotland will be fooled twice.

“If it’s on the table, I think the people of Scotland would want to see what it is. Where’s the detail? Where’s the beef?”

Analysts saw the meeting as little more than jostling for position, given that there is still much time left to run before either the “yes” or “no” campaigns really get going.

“Neither will give much credence to what the other says, both see themselves involved in this rather complex game, a bit like a chess game,” said Eric Shaw, senior lecturer in politics at Stirling University.

Nonetheless, Cameron’s trip to Edinburgh to speak personally to the Scots, who have no great love for him or his politics, is a strong sign of how concerned London is about the referendum.

The government will hope the offer of a further devolution of powers to Scotland could convince swing voters of the merits of staying in the union.

Scotland already has its own legal system and devolved responsibility for domestic matters such as health, education and emergency services.

Polls suggest between 30 and 40 percent of Scots support independence. The SNP hopes it can increase that by 2014, when national pride may be boosted by the 700th anniversary of the Battle of Bannockburn, a famous victory over the English.

About 40 demonstrators against government spending cuts sat down outside St. Andrew’s House, where Cameron and Salmond were meeting, to protest, chanting “Cameron isn’t welcome here” and forcing Cameron to enter the building through a rear entrance.

Cameron wants the referendum held earlier than 2014 to avoid what he says is damaging uncertainty for the Scottish economy.

All major British parties want to keep the union intact, but Cameron faces a dilemma over how to handle the pro-union campaign because his Conservative Party is unpopular north of the border, where it has just one member of parliament.

Some battle lines have already been drawn, with the SNP demanding 90 percent of Britain’s North Sea oil revenues for Scotland while also arguing that the Bank of England should rescue distressed banks in an independent Scotland.

British taxpayers stumped up billions to save the Royal Bank of Scotland (RBS.L: Quote, Profile, Research) from collapse during the 2008 crisis.

An independent Scotland would have to choose whether to keep using the British pound while having no influence on British monetary policy or to seek to join the euro.

(Additional reporting by Adrian Croft and Avril Ormsby in London and Ian MacKenzie in Edinburgh; Editing by Myra MacDonald)

Scotland’s nationalist regional government, which already
controls some areas of spending, wants to hold a referendum in
late 2014 on full independence that could spell an end to a
300-year-old union with England.

Cameron took his case for keeping the United Kingdom intact
to Scotland’s picturesque capital, arguing in a speech laced
with sentimental historical references that Scotland was better
off as part of the union.

“The union helps to make Scotland stronger, safer, richer
and fairer,” he told a business audience, speaking against a
panorama backdrop of Edinburgh castle, perched on a craggy
volcano.

“Of course, Scotland could govern itself. So could England,
but we do it so much better together,” he said.

He warned Scotland would face an uncertain economic future
alone. “There is for some smaller nations the risk that
independence can actually lead to greater dependence,” he said.

Cameron later began talks with Scotland’s First Minister
Alex Salmond, leader of the pro-independence Scottish National
Party (SNP), to thrash out differences over the timing and
content of the referendum Salmond wants to hold on independence.

Salmond, a wily politician, appeared to have won a tactical
advantage by hosting Cameron on his home ground while Cameron
had to make the long journey from London.

As Salmond shook hands with Cameron and ushered him into a
government office, the meeting had every appearance of talks
between the leaders of two independent countries.

CARROT

In his speech, Cameron dangled the carrot that, if Scots
rejected full independence, he would be open to looking at what
further powers could be devolved from London to Edinburgh, but
he did not spell out what they were.

Salmond was sceptical, telling the BBC: “If the prime
minister has an offer to make to the people of Scotland then …
he should spell it out now.”

Scotland has its own legal system and already has devolved
responsibility for domestic matters such as health, education
and emergency services.

Cameron’s trip to Edinburgh to speak personally to the
Scots, who have no great love for him or his politics, is a
strong sign of how concerned London is about the referendum.

The government will hope the offer of a further devolution
of powers to Scotland could convince swing voters of the merits
of staying in the union.

Polls suggest between 30 and 40 percent of Scots support
independence. The SNP hopes it can increase that by 2014, when
national pride may be boosted by the 700th anniversary of the
Battle of Bannockburn, a famous victory over the English.

On a blustery but mild winter’s day in Edinburgh’s steep and
winding cobbled streets, city workers and shoppers were largely
sceptical about the nationalists’ cause.

“A few of my friends support Scotland becoming independent
but I think that is just to show their patriotism,” said Dan
McCormack, a 26-year-old customer services assistant at Bank of
Scotland, arguing that the SNP needed to do a lot more to
convince voters of the economic viability of independence.

“I think independence would be wrong because the Scottish
economy wouldn’t survive on its own.”

About 40 demonstrators against government spending cuts sat
down outside St. Andrew’s House, the government building where
Cameron and Salmond were meeting, to protest, chanting “Cameron
isn’t welcome here.”

The demonstration forced Cameron to enter the building
through a rear entrance.

DATE

Cameron wants the referendum held earlier than 2014 to avoid
what he says is damaging uncertainty for the Scottish economy.

Salmond would like to offer Scots the option of voting for
greater devolution, a half-way house between the status quo and
independence. The British government says there should just be a
yes or no question on independence on the ballot paper.

All major British parties want to keep the union intact, but
Cameron faces a dilemma over how to handle the pro-union
campaign because his Conservative Party is unpopular north of
the border, where it has just one member of parliament, and
Salmond portrays Cameron’s interventions as interference.

Some battle lines have already been drawn, with the SNP
demanding 90 percent of Britain’s North Sea oil revenues for
Scotland while also arguing that the Bank of England should
rescue distressed banks in an independent Scotland.

British taxpayers stumped up billions to save Royal Bank of
Scotland from collapse during the 2008 crisis.

An independent Scotland would have to choose whether to keep
using the British pound while having no influence on British
monetary policy or to seek to join the euro at a time when the
single currency zone is in turmoil.

Rating agency Moody’s imposed a negative outlook on
Britain’s triple-A rating late on Monday — the first such
warning on London’s debt since the eurozone crisis — saying the
country’s finances were too weak to cope with another big shock.

The stakes for Prime Minister David Cameron are high. Costly
bank bailouts and runaway public spending rises under his
predecessor Gordon Brown have saddled Britain with one of the
developed world’s highest budget deficits.

A downgrade of British debt could spook investors and make
it much harder for London to raise the tens of billions of
pounds of funding it needs to get through the next few years.

Economists and analysts still believe on balance, however,
that Britain will get through the crisis without a downgrade. A
Reuters snap poll of 10 economists taken after Moody’s
announcement gave only a median 27.5 percent chance that Britain
would lose its triple-A standing.

Moody’s issues a negative outlook if there is a one in three
chance of a downgrade.

The warning, however, will hurt the Conservative-led
coalition government’s economic record and fuel a debate here
over whether a different policy mix to bring the economy back on
track would yield better results.

While a downgrade would deal a major blow to Chancellor
(finance minister) George Osborne, who has vowed to erase the
budget deficit within five years, some economists doubt it would
significantly drive up borrowing costs.

“We do not expect the UK to be downgraded, but believe such
an event would still not affect the draw of the gilt market,”
said Nomura economist Philip Rush.

The fact that Britain had a very strong track record as a
debtor, the institutions to raise the money to service its debt
and an independent Bank of England should protect the rating.
“Credibility is everything,” Rush said.

The main reason for Moody’s move was the crisis in the euro
zone, Rush said. “If the crisis doesn’t intensify, we’d expect
the negative outlook to fade away over time even if the growth
outlook remains a challenge,” he said.

RISKS

Britain’s recovery from the steep slump in 2008/2009 has
been weak. Unemployment — already at a 17-year high — is set
to rise further, and Bank of England Governor Mervyn King has
warned the way back to growth would be long and arduous.

But Britain is still enjoying near record-low borrowing
costs. The reason is that investors still view its bonds as a
relative safe haven in the global debt storm despite a deficit
worse than that of France, which saw its AAA-rating downgraded
by Standard & Poor’s at the end of last year.

Britain, which has already had to give up on balancing the
books by the time of the next election in 2015, is aiming for a
budget deficit of 8.4 percent of national economic output in the
2011/12 fiscal year, falling to 7.6 percent in 2012/13, still
much higher than those forecast for France or the United States.

The risks to those predictions are considerable, in
particular if the economy fails to recover this year and next.

Vicky Redwood from Capital Economics predicts 10 billion
pounds of extra borrowing in the 2012/2013 fiscal year on top of
the government’s forecast of 120 billion as she sees the economy
contracting by 0.5 percent this year.

A more dramatic shock such as a euro zone break up would
send Britain’s debt spiralling.

Leading fiscal policy think-tank IFS assumed in
its euro break-up risk scenario a drop of Britain’s gross
domestic product by 2.3 percent in 2012, which would send the
government deficit back to nearly 10 percent. However, the IFS
still saw the debt-GDP ratio still falling by 2017 even in this
case.

The IFS also highlighted a more immminent risk.

Most of the nearly 80 billion pounds in government spending
cuts are yet to be delivered. While most of the tax increases
are in place now, only 12 percent of the planned cuts to welfare
and public services have been carried out so far and successful
implementation is not guaranteed.

“The impact of the remaining cuts to the services provided
is difficult to predict; they are of a scale that has not been
delivered in the UK since at least the Second World War,” the
IFS said in its annual analysis of Britain’s public finances.

And while Capital Economics’ Redwood sees annual borrowing
still at more than twice the government’s forecast of 24 billion
pounds in 2017, a rating downgrade is not her central scenario.

SAFE HAVEN

There are several crucial factors why Britain is seen as
safer than most. The average maturity of its debt — which
dictates when the government has to reimburse investors — is 14
years, much longer than many nations, according to the Britain’s
Debt Management Office (DMO), giving it more breathing space.

And the central bank has just embarked on another 50 billion
pound round of quantitative easing purchases. “The Bank of
England is still there as the buyer of last resort and it is
still buying more gilts than the DMO is issuing,” said Monument
Securities strategist Marc Ostwald.

Moody’s itself noted the Bank of England’s key role in
safeguarding investors’ trust as well as the limited risk of not
finding buyers for its debt.

“The UK has the lowest refinancing risk of all the large AAA
economies, based on the average maturity of the UK’s debt stock,
… its large domestic investor base, and the willingness and
ability of its central bank to undertake accommodative monetary
policy,” Moody’s said.

Finance minister Osborne, committed to slashing spending by
about a fifth across government departments before the next
election in 2015, faces the increasingly tough task of pushing
through cuts while steering Britain away from a slump.

Treasury sources indicate that the credit rating must be
protected at all costs, a sign that Osborne could even pledge
further cuts if needed to keep financial markets on side.

“The government will stick to its plan to meet its fiscal
mandate,” one source said.

But sources say there are also senior Treasury officials who
worry that the rating is at risk and that the government will
struggle to deliver its cuts agenda because of the danger of a
prolonged economic stagnation. Officials also worry critics will
now be able to label the coalition’s economic policy a failure
and that voters could respond.

Together these are seen keeping the country credible with investors even though it faces large risks to growth.

Rating agency Moody’s slapped a negative outlook on Britain’s triple-A rating late on Monday, saying the neighbouring euro zone crisis is intertwined the country’s fortunes and its economy and finances are too weak to cope with a major shock.

Economists and analysts said on Tuesday, however, that Britain was strong enough to get through without a downgrade. A Reuters snap poll of 10 economists taken after Moody’s announcement gave only a median 27.5 percent chance that Britain would lose its triple-A standing.

Moody’s issues a negative outlook if there is a one in three chance of a downgrade.

The warning, however, will stain the coalition government’s economic record and a fuel the ongoing debate over whether a different policy mix to bring the economy back on the recovery track.

But while a downgrade would come as a major blow Chancellor George Osborne, who has vowed to erase the budget deficit within five years, many economists doubt that it would significantly drive up borrowing costs for the country.

“We do not expect the UK to be downgraded, but believe such an event would still not affect the draw of the gilt market,” said Nomura economist Philip Rush.

Britain’s recovery from the steep slump in 2008/2009 has been weak. Unemployment — already at a 17-year high — is set to rise further, and Bank of England governor Mervyn King has warned the way back to growth would be long and arduous.

But still, Britain is enjoying near record-low borrowing costs as investors view its bonds as a relative safe haven in the global debt storm despite a deficit worse than that of France, which saw its AAA-rating stripped by Standard & Poor’s at the end of last year.

Britain, which has already had to give up on balancing the books by the time of the next election in 2015, is aiming for a budget deficit of 8.4 percent of national economic output in the 2011/12 fiscal year, falling to 7.6 percent in 2012/13.

In contrast, France is hoping to run a budget deficit of about 4.5 percent of national economic output this year, while the United States is seen posting a deficit of 6.2 percent.

SAFE HAVEN

There are several crucial factors why Britain is seen as safer than most. The average maturity of its debt — which dictates when the government has to reimburse investors — is 14 years, much longer than many nations, according to the Britain’s Debt Management Office, giving it a lot of breathing space.

And the central bank has just embarked on another 50 billion pounds round of quantitative easing purchases. “The Bank of England is still there as the buyer of last resort and it is still buying more gilts than the DMO is issuing,” said Monument Securities strategist Marc Ostwald.

Moody’s itself noted the Bank of England’s key role in safeguarding investors’ trust as well as the limited risk of not finding buyers for its debt.

“The UK has the lowest refinancing risk of all the large AAA economies, based on the average maturity of the UK’s debt stock, … its large domestic investor base, and the willingness and ability of its central bank to undertake accommodative monetary policy,” Moody’s said.

Politically, nonetheless, the loss of the top-rating would be a big blow for a government that has pinned its fortunes on reviving Britain’s economy by rapidly reducing a record budget deficit and safeguarding its top-notch credit rating.

Both of those goals now look to be in danger.

Finance minister Osborne, committed to slashing spending by about a fifth across government departments before the next election in 2015, faces the increasingly tough task of pushing through cuts while steering Britain away from a slump.

Treasury sources indicate that the credit rating must be protected at all costs, a sign that Osborne could even pledge to make further cuts if needed to keep financial markets on side.

“The government will stick to its plan to meet its fiscal mandate,” one source said.

But sources say there are also senior Treasury officials who worry that the rating is at risk and that the government will struggle to deliver its cuts agenda, given its ambition, because of the danger of a prolonged economic stagnation. Officials also worry critics will now be able to label the coalition’s economic policy a failure and that voters could respond.

The Labour party, in desperate need of a boost to stand a real chance of election victory in 2015, seized on Moody’s move to accuse the Conservatives of putting the economy at risk. “My policy has been consistently not to say you should set your economic policy by what the credit ratings agencies say,” said shadow chancellor – and former cabinet minister – Ed Balls.

(Additional reporting by Sudip Kar-Gupta. Editing by Jeremy Gaunt.)

Together these are seen keeping the country credible with investors even though it faces large risks to growth.

Rating agency Moody’s slapped a negative outlook on Britain’s triple-A rating late on Monday, saying the neighboring euro zone crisis is intertwined the country’s fortunes and its economy and finances are too weak to cope with a major shock.

Economists and analysts said on Tuesday, however, that Britain was strong enough to get through without a downgrade. A Reuters snap poll of 10 economists taken after Moody’s announcement gave only a median 27.5 percent chance that Britain would lose its triple-A standing.

Moody’s issues a negative outlook if there is a one in three chance of a downgrade.

The warning, however, will stain the Conservative-led coalition government’s economic record and a fuel the ongoing debate over whether a different policy mix to bring the economy back on the recovery track.

But while a downgrade would come as a major blow finance minister George Osborne, who has vowed to erase the budget deficit within five years, many economists doubt that it would significantly drive up borrowing costs for the country.

“We do not expect the UK to be downgraded, but believe such an event would still not affect the draw of the gilt market,” said Nomura economist Philip Rush.

Britain’s recovery from the steep slump in 2008/2009 has been weak. Unemployment — already at a 17-year high — is set to rise further, and Bank of England governor Mervyn King has warned the way back to growth would be long and arduous.

But still, Britain is enjoying near record-low borrowing costs as investors view its bonds as a relative safe haven in the global debt storm despite a deficit worse than that of France, which saw its AAA-rating stripped by Standard & Poor’s at the end of last year.

Britain, which has already had to give up on balancing the books by the time of the next election in 2015, is aiming for a budget deficit of 8.4 percent of national economic output in the 2011/12 fiscal year, falling to 7.6 percent in 2012/13.

In contrast, France is hoping to run a budget deficit of about 4.5 percent of national economic output this year, while the United States is seen posting a deficit of 6.2 percent.

SAFE HAVEN

There are several crucial factors why Britain is seen as safer than most. The average maturity of its debt — which dictates when the government has to reimburse investors — is 14 years, much longer than many nations, according to the Britain’s Debt Management Office, giving it a lot of breathing space.

And the central bank has just embarked on another 50 billion pounds round of quantitative easing purchases. “The Bank of England is still there as the buyer of last resort and it is still buying more gilts than the DMO is issuing,” said Monument Securities strategist Marc Ostwald.

Moody’s itself noted the Bank of England’s key role in safeguarding investors’ trust as well as the limited risk of not finding buyers for its debt.

“The UK has the lowest refinancing risk of all the large AAA economies, based on the average maturity of the UK’s debt stock, … its large domestic investor base, and the willingness and ability of its central bank to undertake accommodative monetary policy,” Moody’s said.

Politically, nonetheless, the loss of the top-rating would be a big blow for a government that has pinned its fortunes on reviving Britain’s economy by rapidly reducing a record budget deficit and safeguarding its top-notch credit rating.

Both of those goals now look to be in danger.

Finance minister Osborne, committed to slashing spending by about a fifth across government departments before the next election in 2015, faces the increasingly tough task of pushing through cuts while steering Britain away from a slump.

Treasury sources indicate that the credit rating must be protected at all costs, a sign that Osborne could even pledge to make further cuts if needed to keep financial markets on side.

“The government will stick to its plan to meet its fiscal mandate,” one source said.

But sources say there are also senior Treasury officials who worry that the rating is at risk and that the government will struggle to deliver its cuts agenda, given its ambition, because of the danger of a prolonged economic stagnation. Officials also worry critics will now be able to label the coalition’s economic policy a failure and that voters could respond.

The opposition Labour party, in desperate need of a boost to stand a real chance of election victory in 2015, seized on Moody’s move to accuse the Conservatives of putting the economy at risk. “My policy has been consistently not to say you should set your economic policy by what the credit ratings agencies say,” said Labour’s finance spokesman – and former cabinet

(Additional reporting by Sudip Kar-Gupta. Editing by Jeremy Gaunt.)

With many workers experiencing effective pay cuts after
inflation, the prospect of another bumper bonus round for
executives at Britain’s biggest firms is stoking up widespread
resentment in Britain.

Stephen Hester, the chief executive of majority state-owned
bank RBS, waived almost a million pounds in bonuses in
January after media outrage and political pressure from the
Conservative-Liberal Democrat government and the opposition
Labour Party.

Bosses at state-backed Network Rail also turned down their
annual bonuses this month, though the government is braced for
another surge of public anger over a big bonus pay-out expected
this week for Barclays chief executive Bob Diamond.

However, government ministers are worried that a perception
that Britain is hostile to business could drive away both
investment and top talent from its biggest companies.

Osborne will seek to temper the debate, while pointing out
the action ministers are taking to crack down on any
unacceptable excess at the top of the pay scale, in a speech to
small business leaders on Tuesday.

“Of course, rewards for failure are unacceptable — and
those who believe in the free market are the first to say so,”
he will say, according to extracts from the speech released by
his office in advance.

“But a strong, free market economy must be built on rewards
for success. There are those who are trying to create an
anti-business culture in Britain — and we have to stop them.”

The government has proposed strengthening the role that
shareholders play in deciding rewards for executives, alongside
other measures such as improving pay transparency, although
Labour argues that will do little to change the status quo.

Fred Goodwin, elevated to the rank of knight of the realm by Queen Elizabeth in 2004, steered one of Britain’s largest banks to near collapse with the catastrophic buyout of a Dutch bank, a disaster that helped bring on the global financial crisis.

He has become a target of public fury in Britain for his role in the 2008 crash – which led to the government spending 45 billion pounds to bail out his bank – and the lavish taxpayer-funded pension he took with him when he left.

“RBS came to symbolise everything that went wrong with the British economy over the last decade and under Fred Goodwin that’s when it happened and I think it’s appropriate therefore that he loses his knighthood,” Britain’s Conservative Finance Minister George Osborne said.

The decision to strip Goodwin of his knighthood came two days after Goodwin’s successor at RBS, Stephen Hester, announced he would turn down a million pound share bonus that had drawn withering scorn from all of Britain’s major political parties.

A report in December by the Financial Services Authority (FSA) regulator into the near-collapse of RBS blamed Goodwin and other former RBS bosses, while also criticising the FSA itself and the then-Labour government for lightweight financial regulation.

Conservative Prime Minister David Cameron expressed satisfaction at the decision to strip Goodwin of the knighthood, while opposition Labour Party leader Ed Miliband – who had demanded a parliamentary debate on Hester’s bonus – continued to call for deeper reforms at banks.

“It is right Fred Goodwin has lost his knighthood but it is only the start of the change we need to see. We need to change the bonus culture and we need to change the rules so we see real responsibility across the board,” he said.

Knighthoods for subjects of the British queen – and honorary ones for foreigners – are among the highest honours bestowed by Britain for outstanding achievement or service. As a knight, Goodwin had the right to be called “Sir Fred”.

He joins a small list of those who have been stripped of the honour, alongside figures such as the Zimbabwean president, the former Romanian Communist dictator and Anthony Blunt, a notorious British double agent who spied for the Soviets.

“FRED SHREDDED”

Goodwin oversaw about 20 deals while in charge of RBS, as the Scottish bank embarked upon an expansive acquisition spree. His habit of extracting savings from deals by axing staff earned him the nickname “Fred the Shred”.

After the announcement, newspaper headline writers had a field day. “Sir Fred’s Honour Shredded” ran the banner headline of Wednesday’s edition of the Financial Times, while the popular Sun tabloid’s take was: “Fred’s ‘Sir’ is Shredded”.

The electrician’s son was born and raised in Paisley, near Glasgow, where he attended the local grammar school before studying law at Glasgow University. He qualified as an accountant and made his mark in banking by helping clean up the mess of collapsed BCCI bank in the early 1990s.

He rose swiftly through the ranks after joining RBS, but his pursuit of Dutch bank ABN AMRO proved a deal too far. The credit crisis saw the value of the ABN AMRO assets fall rapidly and RBS found itself close to collapse.

To prevent a wider economic collapse, the state bailed out the nearly 300-year-old bank, buying an 83 percent stake.

Goodwin added to the scorn of many Britons when he fought to hold on to a pension pot worth almost 700,000 pounds a year from the now mainly publicly-owned bank. A public outcry forced him to settle for about half as much.

The abrogation of his title was a very British punishment in a country whose public honours system still reflects centuries of class distinction and tradition.

The Unite trade union welcomed the move to strip Goodwin of his title.

“It is a token gesture to strip Fred Goodwin of his knighthood, but one which will be well received by the thousands of workers who lost their jobs during his rule,” said the union’s national officer David Fleming.

The woes of RBS have come to symbolise for many in Britain more serious problems with the country’s banking industry. Many are still angry that bankers continue to earn millions while elsewhere thousands lose their jobs as the economy weakens.

Conservative Party politician Mark Field said British authorities should look at clawing back Goodwin’s pension.

“I have always felt the far more serious thing rather than the area that everyone has been jumping on the bandwagon about – his knighthood – has been the fact that he got a pension,” he told the BBC.

“That was signed off at a time when we knew that most of the so-called profits RBS had achieved over the years of Fred Goodwin’s stewardship were in fact entirely illusory.”

(Reporting by Matt Falloon, Mohammed Abbas, Sudip Kar-Gupta and Avril Ormsby)

Fred Goodwin, elevated to the rank of knight of the realm by Queen Elizabeth in 2004, steered one of Britain’s largest banks to near collapse with the catastrophic buyout of a Dutch bank, a disaster that helped bring on the global financial crisis.

He has become a target of public fury in Britain for his role in the 2008 crash – which led to the government spending 45 billion pounds ($71 billion) to bail out his bank – and the lavish taxpayer-funded pension he took with him when he left.

“RBS came to symbolize everything that went wrong with the British economy over the last decade and under Fred Goodwin that’s when it happened and I think it’s appropriate therefore that he loses his knighthood,” Britain’s Conservative Finance Minister George Osborne said.

The decision to strip Goodwin of his knighthood came two days after Goodwin’s successor at RBS, Stephen Hester, announced he would turn down a million pound share bonus that had drawn withering scorn from all of Britain’s major political parties.

A report in December by the Financial Services Authority (FSA) regulator into the near-collapse of RBS blamed Goodwin and other former RBS bosses, while also criticizing the FSA itself and the then-Labor government for lightweight financial regulation.

Conservative Prime Minister David Cameron expressed satisfaction at the decision to strip Goodwin of the knighthood, while opposition Labor Party leader Ed Miliband – who had demanded a parliamentary debate on Hester’s bonus – continued to call for deeper reforms at banks.

“It is right Fred Goodwin has lost his knighthood but it is only the start of the change we need to see. We need to change the bonus culture and we need to change the rules so we see real responsibility across the board,” he said.

Knighthoods for subjects of the British queen – and honorary ones for foreigners – are among the highest honors bestowed by Britain for outstanding achievement or service. As a knight, Goodwin had the right to be called “Sir Fred.”

He joins a small list of those who have been stripped of the honor, alongside figures such as the Zimbabwean president, the former Romanian Communist dictator and Anthony Blunt, a notorious British double agent who spied for the Soviets.

“FRED SHREDDED”

Goodwin oversaw about 20 deals while in charge of RBS, as the Scottish bank embarked upon an expansive acquisition spree. His habit of extracting savings from deals by axing staff earned him the nickname “Fred the Shred.”

After the announcement, newspaper headline writers had a field day. “Sir Fred’s Honor Shredded” ran the banner headline of Wednesday’s edition of the Financial Times, while the popular Sun tabloid’s take was: “Fred’s ‘Sir’ is Shredded.”

The electrician’s son was born and raised in Paisley, near Glasgow, where he attended the local grammar school before studying law at Glasgow University. He qualified as an accountant and made his mark in banking by helping clean up the mess of collapsed BCCI bank in the early 1990s.

He rose swiftly through the ranks after joining RBS, but his pursuit of Dutch bank ABN AMRO proved a deal too far. The credit crisis saw the value of the ABN AMRO assets fall rapidly and RBS found itself close to collapse.

To prevent a wider economic collapse, the state bailed out the nearly 300-year-old bank, buying an 83 percent stake.

Goodwin added to the scorn of many Britons when he fought to hold on to a pension pot worth almost 700,000 pounds a year from the now mainly publicly-owned bank. A public outcry forced him to settle for about half as much.

The abrogation of his title was a very British punishment in a country whose public honors system still reflects centuries of class distinction and tradition.

The Unite trade union welcomed the move to strip Goodwin of his title.

“It is a token gesture to strip Fred Goodwin of his knighthood, but one which will be well received by the thousands of workers who lost their jobs during his rule,” said the union’s national officer David Fleming.

The woes of RBS have come to symbolize for many in Britain more serious problems with the country’s banking industry. Many are still angry that bankers continue to earn millions while elsewhere thousands lose their jobs as the economy weakens.

Conservative Party politician Mark Field said British authorities should look at clawing back Goodwin’s pension.

“I have always felt the far more serious thing rather than the area that everyone has been jumping on the bandwagon about – his knighthood – has been the fact that he got a pension,” he told the BBC.

“That was signed off at a time when we knew that most of the so-called profits RBS had achieved over the years of Fred Goodwin’s stewardship were in fact entirely illusory.”

($1 = 0.6337 British pounds)

(Reporting by Matt Falloon, Mohammed Abbas, Sudip Kar-Gupta and Avril Ormsby)

Cameron said he had no wish to get in the way of Britain’s European partners resolving their debt crisis.

“Our national interest is that these countries get on and sort out the mess that is the euro,” he told reporters at the end of an EU summit in Brussels.

But hardline eurosceptics, an influential wing of his party which has made political life untenable for former Conservative prime ministers, accused him of watering down his position.

Cameron, a pragmatic eurosceptic who wants to keep Britain at the centre of EU decision-making while clawing back powers from Brussels, has to appease both the restive parts of his party and his pro-European Liberal Democrat coalition partners, who were dismayed at his decision to use the veto in December.

“We’re not signing this treaty. We’re not ratifying it. And it places no obligations on the UK,” Cameron said.

“But, as I said in December, this is new territory. It has only been agreed today. It has yet to be ratified or implemented. There are a number of legal concerns about this treaty. That’s why today I reserved the UK position on it.”

The prime minister made time in his diary to meet with British Conservative members of the European parliament before arriving at the summit.

Their reaction suggested they were unimpressed.

“There is no doubt that the government’s position has altered since the December summit when they were insisting the institutions could not be used,” Martin Callanan, the leader of the Conservative MEPs said after that meeting.

“I blame a combination of appeasing (Lib Dem leader) Nick Clegg and the practical reality that this pact is actually quite hard to prevent. Any action could easily take two years, we would probably lose and, if the euro collapsed in the meantime, the UK would get the blame.”

Conservative lawmaker Bernard Jenkin called the change in rhetoric “a retreat.” Another, Douglas Carswell, likened the credibility of Britain’s position to Greek government bonds.

SOFTER APPROACH?

Cameron said last year he did not want the European Union institutions, such as its courts, to be used in the execution of the new fiscal pact between European nations as part of a long-term solution to the euro zone debt crisis.

He refused to sign up to the deal, leaving Britain isolated, after other European leaders snubbed his demands for specific safeguards for Britain’s prized financial services sector.

The surprise decision boosted his ratings in opinion polls and drew cheers from his party, but at an as yet unquantified cost to Britain’s foreign policy standing.

Since then, Cameron has spoken to a number of European leaders to ease tensions, particularly evident with French President Nicolas Sarkozy at the December summit.

“I’m a big supporter and friend of Nicolas Sarkozy. I wish him well. He’s a remarkable man,” Cameron said. “I worked with him very closely over the Libyan conflict. I think that was probably the closest the British and French have worked together in the last 40 years.”

Officials dismissed the idea that Cameron was softening his stance Monday, but also knocked back the biggest fear of the eurosceptics — that the foundations were being laid for Britain to eventually sign up to the fiscal pact.

(Reporting by Matt Falloon, editing by Mike Peacock)