UK Chancellor Kwasi Kwarteng is reportedly planning to scrap caps on bankers’ bonuses in a controversial move aimed at attracting more talent to the City of London.
A source close to Kwarteng confirmed that the Chancellor was considering lifting the cap but stressed that no decision had been made.
We know that the ministers fear that the City will lose out to other financial centres. The source noted that Paris offers 30% income tax rates to attract investment banking professionals. They said the Chancellor believed UK tax revenue could be increased if the city could attract more banking talent.
According to the Financial Times, Kwarteng wants to scrap rules imposed after the 2008 financial crash that capped bonuses at twice an employee’s salary. It’s part of what he calls “Big Bang 2.0” – a post-Brexit deregulation drive to make the City more competitive.
But the idea is already widely in question amid predictions of a backlash at a time when many families are struggling with the cost of living.
Andrew Sentance, a member of the Bank of England’s monetary policy committee during and after the financial crisis, said it was a “very bad” time to consider raising bankers’ bonuses.
Speaking on BBC Radio 4’s Today program on Thursday, Sentance said: “It sends a rather confusing signal when people are squeezed in terms of the cost of living and the government is trying to encourage wage moderation in the public sector.”
He added: “Appearing to allow bankers to have bigger bonuses at the same time doesn’t seem very timely. There may be longer-term arguments for continuing this policy, but I think the timing would be very bad if they did it now.
Prof Susan Michie, Director of the Center for Behavior Change and Government Science Advisor, tweeted: “0.3% of the British electorate voted for Truss as Prime Minister. the ceiling on bankers’ bonuses (which is already twice their salaries) while asking the others for wage moderation.
Lionel Barber, the former editor of the Financial Times, tweeted that the move would be “politically toxic”.
Kwarteng reportedly told a city leader last week that “we have to be decisive and do things differently”. He is said to be sensitive to City complaints that EU-wide rules imposed after the crash to cap bonuses are leading to higher base salaries, increasing costs for banks.
Sources told the Financial Times that Kwarteng wants to boost the city’s competitiveness against New York, Frankfurt, Hong Kong and Paris, and their tax incentives to attract top bankers.
A financier told the newspaper that removing the bonus cap was a “clear Brexit dividend. Something you can present as a win.
The plan is expected to meet opposition from Labour. When the idea was first suggested in June, Labor leader Keir Starmer described it as “pay rises for bankers, pay cuts for district nurses”.