Chancellor wants to scrap cap on bankers’ bonuses to boost City
CHANCELLOR Kwasi Kwarteng is considering scrapping the cap on bankers’ bonuses to make the City more globally competitive, it emerged yesterday.
He wants to remove the cap that limits annual bonuses to twice their salary.
It was introduced in the wake of the 2008 financial crash to prevent bankers taking unnecessary risks. But Mr Kwarteng believes ending the cap would make London a more attractive place for talented bankers and would be a clear signal of his ‘Big Bang 2.0’ approach to overhauling City regulations. He is said to be anxious to boost London’s competitiveness against other major financial hubs such as Hong Kong and New York, which are offering tax incentives to attract top bankers. But he faced a backlash from unions, economists and MPs yesterday, with TUC general secretary Frances O’Grady saying: ‘ Bonuses in the City are already at a record high. While City executives rake it in, millions are struggling to keep their heads above water.
‘Working people are being walloped by soaring prices after the longest and harshest wage squeeze in modern history. The Chancellor’s number one priority should be getting wages rising for everyone – not boosting bumper bonuses for those at the top.’
City bosses have criticised the cap, which was introduced by EU legislation, but its supporters say huge bonuses previously encouraged excessive risk- taking that led to the financial crash. Economist Andrew Sentance, who was a member of the Bank of England’s Monetary Policy Committee at the time, said of the plans: ‘It sends a rather confused signal when people are
‘Timing would be bad now’
being squeezed in terms of the cost of living and the Government is trying to encourage pay restraint in the public sector.’
He told BBC Radio 4’s Today programme: ‘There may be some longer-term arguments for pursuing this policy, but I think the timing would be very bad if they did it now.’
Labour MP Dame Margaret Hodge said research showed ‘mergers and acquisition bankers in 2021 got the highest bonuses they’ve had since records began – £2.6billion’.
‘That’s the equivalent of paying the salaries of nearly 80,000 nurses,’ she said. ‘So thinking about bankers at this stage is obscene. Whose side is everybody on really?’ The Bank of England said it never supported a cap on bankers’ bonuses and believes there are more effective ways to discourage excessive risk-taking.
ON the face of it, there is bad timing, worse timing and the Chancellor saying he wants to scrap the cap on bankers’ bonuses.
With families being pummelled by the cost of living crisis and the Government urging pay restraint, the plan seems like a PR disaster. Not long ago, bankers’ reckless greed brought Britain’s financial services to the brink of collapse, so queasiness at them again being allowed to shamelessly plunder vast rewards is understandable.
But if Kwasi Kwarteng is determined to hit the accelerator on growth, he must improve the City’s global competitiveness.
By unshackling it from EU bonus-capping regulations, the Treasury will make the Square Mile more attractive to international talent and investment – ultimately making us more prosperous.
Yes, critics warn that uncapped bonuses could lead to the kind of excessive risktaking that led to the financial crash. But new and tougher penalties should deter irresponsibility and misconduct.
Mr Kwarteng should ignore the Left’s outraged howls and dig his heels in on this policy. His job is to make the right calls for the economy – not to wilt before bankerbashing populism.