The Daily Telegraph
Revive the City
Economic growth in Britain has been feeble since the financial crisis. One reason is successive governments’ deliberate strategy to defang and shrink the size of the City of London. Of course, the over-exuberance seen before the crisis needed to be tamed through better rules. But the backlash in terms of extra red tape and much higher taxes went too far.
The Chancellor, Kwasi Kwarteng, is right that the British economy could and must grow a lot faster, and he is therefore right to consider scrapping the demagogic cap on bankers’ bonuses. It never made any sense. It has done nothing to discourage excessive risk-taking: there are now plenty of other rules that do achieve this. It has merely driven business to other countries.
The cap does not limit total bankers’ pay. Instead, perversely, it forces up basic salaries, and reduces the performance-related element of remuneration. This in turn weakens banks’ ability to respond to recessions. It also means that star performers are now increasingly located in the United States or in Asia, rather than in London and Europe. Given the vast amounts of tax paid by the City and its workers, this is absurd and counterproductive. Every other profession is allowed to determine its own pay policies: in a free society, the same should be true of bankers.
Brexit did cost the City some jobs and some revenue, as a result of EU protectionism. It is now time to fight back by making London once again the most attractive place for financiers to base themselves. With better rules and lower taxes, another boom is easily possible, and investment and money will flood out of Europe and, to a lesser degree, other financial centres, back into the UK.