Bankers’ bonuses back to boost Britain

KWASI Kwarteng mounted a fullthroated defence of his decision to scrap the banker bonus cap today.

The Chancellor vowed to reform the City so global banks would ‘pay taxes here in London – not Paris, not Frankfurt, not New York’. Introduced by the EU in the aftermath of the 2008 financial crisis, the cap on bonuses for high-flying City workers at two times their salary was designed to avoid rewarding excessive risk-taking.

But the measure was criticised by British regulators at the time, who said it simply weighed on London’s competitiveness relative to the US as top performers were driven to New York.

It also did little to limit risk-taking, they added, as it pushed banks to pay their workers higher salaries rather than being able to control rewards through flexible bonuses.

Now that the UK is no longer part of the EU, Mr Kwarteng – a former analyst at Wall Street giant JPMorgan – said Britain was free to scrap the cap.

Explaining the decision in his mini-Budget, the Chancellor said: ‘A strong UK economy has always depended on a strong financial services sector.

‘We need global banks to create jobs here, invest here, and pay taxes here in London – not Paris, not Frankfurt, not New York. All the bonus cap did was to push up the basic salaries of bankers or drive activity outside

Europe. It never capped total remuneration, so let’s not sit here and pretend otherwise.’

Combined with the abolition of the higher rate of income tax, charged at 45p for every pound earned over £150,000, City businesses said London was finally becoming a more attractive place to work.

Roger McCormick, a former lawyer and honorary fellow at Bayes Business School, said: ‘The need for the cap is no longer obvious so it should be removed. There are other ways of curbing recklessness and there have been regulatory changes directed at this.

‘There is also the issue of competitiveness. London is already a leading financial centre and to remain attractive to the best we shouldn’t be imposing artificial and unnecessary limits on potential financial rewards.’

UK Finance, which represents the banking industry, said the mini-Budget was ‘the start of what is needed to unleash the sector’s full strength to deliver economic growth’.

But the move was not roundly welcomed. Luke Hildyard, of think tank the High Pay Centre, said: ‘By scrapping the bankers’ bonus cap and cutting tax on the richest 1 per cent of the population, the Government is doubling down on a failed economic strategy. The Government should recognise that we can’t meaningfully raise living standards without re-balancing income and wealth in favour of low and middle income earners.’

The scrapping of the bonus cap paves the way for Mr Kwarteng to further boost the City, with a ‘package of regulatory reforms’ to be unveiled in the autumn.