HSBC and Barclays, two of Britain’s biggest banks, today announced strong profits for the first half of the financial year. Neither bank has taken taxpayers’ money to stay afloat, but both undoubtedly benefited from the Government guarantees that they were too important to be allowed to fail.

Although neither bank is likely to make decisions on the thorny issue of bonuses until the end of the year, for some the scale of the profits sits uncomfortably alongside the fragile signs of growth in the real economy. However, the potential stabilisation of the banking sector is surely a good thing for society; no economy can make a full recovery without a strong banking and investment sector. Furthermore large profits mean a proportionally large windfall for the beleaguered treasury and perhaps even a tantalising promise that the Government may be able to turn a profit on its bank shares, albeit several years down the line.

So although large profits in the banking sector can be illusory, as Lehman Brothers and other blue chip investment firms have demonstrated, strong performances by Britain’s banks are a welcome sign.

The financial sector could not have survived the credit crunch without the intervention of the Government and the Bank of England as lenders of last resort, but it remains to be seen whether the surviving firms have learnt any lessons for the future. We will almost certainly see an improvement of the regulation governing the financial sector, perhaps even the return of a firewall between investment and retail banks. But, of course, that’s all very technical and rather arcane stuff. Which is, perhaps, one reason that media furore regarding the credit crunch has tended to centre on the issue of bonuses.

No-one can say for sure what role, if any, bonuses played in causing the credit crunch; however, the bonuses paid out to the top executives of the bailed out banks were quite rightly seen as being unacceptable. The question is will bonuses remain a contentious issue as the normal economy begins to recover from the recession? Bonuses awarded to top bankers seemed to bother few before the credit crunch and, after all, multi-millionaire footballers are lauded by working class supporters every week from the terraces of British football grounds. During the long period of economic growth of the last two decades, British society, to paraphrase Tony Blair, seemed to be extremely comfortable with people getting extremely rich.

Populists have responded to the Credit Crunch by calling for punitive measures on the super-rich, but punitive measures can have the affect of deterring foreign investment and destroying wealth creation. The fact is, in a free society, it is very difficult to tell private citizens what they may or may not pay each other for a particular service.

Indeed, the country’s top union leaders have all recently enjoyed inflation-busting salary and bonuses increases, while encouraging union members to endure pay-freezes for the remainder of the recession. Tony Woodley, joint leader of Unite, saw his pay and benefits package increased by 20% from £88,359 to £105,761 last year. Bob Crow, the far-left leader of the RMT rail union, saw his pay and benefits rose by 8% to £91,646 in 2008. Strangely, for a union leader, Crow claimed “I don’t really know if my pay rise was inflation busting”. Jim McAulson, leader of the British Airline Pilots Association had a pay increase of 8% to £107,000 last year and said of the pay increase, “I would like to think it was because I do a good job”. And that’s the issue, no-one can really dictate to private citizens that their privately earned income is unjustified.

It is clear that the financial sector relies on the Government as a lender of last resort and, as such, it surely has some responsibility to ensure that it makes a positive contribution to British society as a whole. It remains to be seen to what extent wider society is concerned about the earnings of other private citizens following economic recovery, and there is certainly no general desire for punitive measures against the very rich. There is some scope for reform of the ‘bonus culture’ to ensure that investment banks pay sufficient attention to risk management, but such reform will only be truly fit-for-purpose if it is done on a global scale.

In the meantime the top-performers in banking, as in football, continue to command the top rewards. It was recently revealed that Stephen Hester, the Government appointed CEO of taxpayer owned RBS could earn up to £9 million, depending on the bank’s performance in the coming years. However, if Hester can turn the bank around and allow taxpayers’ shares to be sold back at a profit, who’s to say he wouldn’t be worth it?