UK Unions in Fury Over Plan to Scrap Banker's Bonus Cap as 'Millions Are Walloped by Soaring Costs'
09:16 GMT 16.09.2022 (Updated: 15:21 GMT 28.05.2023)
© AP Photo / Lefteris Pitarakis
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Liz Truss’s new Chancellor, Kwasi Kwarteng, who is to deliver a mini-budget next week, reportedly has his sights set on boosting City of London’s competitiveness against rival hubs in New York, Frankfurt, Hong Kong and Paris, with scrapping the bankers’ bonus cap seen as a “clear Brexit dividend.”
Britain’s trade unions have been infuriated by the government’s reportedly mulled plans to scrap a cap on bankers’ bonuses amid the raging cost of living crisis, The Guardian reported.
As ministers return to politics next week, Chancellor Kwasi Kwarteng will deliver an emergency mini-budget on September 23, bringing in tax cuts and energy support for households and businesses.
He is also allegedly considering shedding the EU-wide cap on bankers’ bonuses that dates back to the UK’s pre-Brexit period and limits annual pay-outs to twice a banker’s salary, the FT reported, citing insiders.
“The chancellor’s No 1 priority should be getting wages rising for everyone – not boosting bumper bonuses for those at the top,” Frances O’Grady, the general secretary of the Trades Union Congress (TUC) said.
O’Grady underscored the poor timing of the mulled measure, coming as people “are being walloped by soaring prices after the longest and harshest wage squeeze in modern history.”
Will the Bank of England Governor condemn plans for bankers to get unlimited bonuses, after he previously told workers to not ask for a payrise?
— Trades Union Congress (@The_TUC) September 15, 2022
Similar criticism of the reported plans came from a spate of economists. Andrew Sentance, who was a member of the Bank of England’s Monetary Policy Committee during and after the financial crisis, said on BBC Radio 4’s Today program:
“It sends a rather confused signal when people are being squeezed in terms of the cost of living and the Government is trying to encourage pay restraint in the public sector. 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.”
According to Luke Hildyard, the executive director of the High Pay Centre think tank, the “pro-rich ideological measure” was poorly timed to an “epic cost-of-living crisis” and “profound economic hardship.”
Gary Smith, the general secretary of the GMB union, slammed the “rank hypocrisy” of the government.
“Apparently frontline workers asking for a pay rise risks increasing inflation, while allowing fat cat bankers to trouser monstrous bonuses ‘attracts talent’ and ‘boosts the city,’ Smith told PA news agency.
City Bonus Cap
The City bonus cap was introduced by the EU after the 2007-08 financial crisis as part of a set of regulations known as the Capital Requirements Directive that came into force in 2014. The package included a rule that capped banker bonuses at two times their annual salaries. At the time, the banking sector’s “bonus culture” was faulted for prioritizing short-term profits over longer-term stability and incentivizing “risky behavior.”
A 2009 review into the global banking crisis by Lord Adair Turner, chairman of the FSA, suggested that bonuses may have encouraged bankers to take “excessive risks”.
At the time, the UK opposed the legislation, with the-then Chancellor, George Osborne, making a last-ditch attempt to overturn the bonus cap at the European Court of Justice. The Bank of England (BOE) was also concerned the cap would result in a rise in fixed salary costs. Still others argued that it would damage City competitiveness against rival hubs in New York, Zurich or Singapore.
A ‘Clear Brexit Dividend’
The current mooted change is seen as part of the government’s new agenda hoping to render the UK more competitive. The idea to scrap the EU bonus cap had been floated in June, with Labour leader Sir Keir Starmer describing it as “pay rises for bankers, pay cuts for district nurses.”
While no definite decision has been taken yet, according to the FT, Kwasi Kwarteng purportedly embraced the idea of removing the cap as part his new “Big Bang 2.0” approach to post-Brexit City regulation, according to insiders.
The Chancellor purportedly believes that the move would make London a more attractive destination by offering incentives to attract top financial talent.
Scrapping the cap would be a “clear Brexit dividend. Something you can present as a win,” a financial executive was cited as saying.
“The tax risks pushing the best people to the US where they can get better paid. It also skews the performance elements of pay as it means you have to pay a high basic salary that doesn’t have incentives attached. But it’s going to be publicly difficult to sell during a time of austerity,” another financial services executive added.
