Kwasi Kwarteng considers ending cap on bankers' bonuses in UK

Employers say limit meant people needed to be paid millions of pounds more in salary

Canary Wharf in London. The UK wants to improve increase London's competitiveness against other financial centres such as Hong Kong and New York.
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The UK is looking at scrapping caps on banker bonuses introduced after the 2008 financial crash in an attempt to boost competitiveness.

Chancellor Kwasi Kwarteng wants to increase London's competitiveness against other financial centres such as Hong Kong and New York, including EU cities now that the UK has left the bloc.

Bankers’ bonuses are being looked at through the lens of increasing competitiveness in British business but the UK is also trying to tackle rampant inflation.

Former Bank of England policymaker Andrew Sentance said lifting the cap on banker bonuses would be at odds with efforts to rein in inflation, which touched a 40-year high of 10.1 per cent in July.

“It sends a rather confused signal when people are being squeezed by the cost of living and the government is encouraging pay restraint. The timing would be very bad,” he said.

Supporters of the cap believe unfettered bonuses encouraged the excessive risk-taking that led to the financial crisis.

Employers have said limiting the bonuses meant people needed to be paid millions of pounds more to attract them.

Richard Gnodde, head of Goldman Sachs’ international operations, said that lifting the cap would make “London a more attractive place”.

“If I move a senior person between New York and London, I am driving up the fixed cost of our operations. If that rule doesn’t exist, I don’t have to think about that.”

Mr Kwarteng is expected to announce a mini-budget to help the country as it faces soaring bills.

It was not known whether an announcement on bankers' pay would come in that “fiscal statement” or as part of a wider package later on. The Financial Times was the first to report the discussion but it has since been confirmed in other briefings.

To reduce criticism about helping rich bankers amid a cost of living crisis, Mr Kwarteng will set the move in the context of Britain's recently announced move to cap consumer energy bills for two years.

Opposition leader Sir Keir Starmer accused him of plotting “pay rises for city bankers, pay cuts for district nurses”.

Luke Hildyard, the executive director of the High Pay Centre think tank, said removing the cap would be an “ideological measure” that favours the rich.

“The bonus cap has probably helped to contain bankers' pay awards but they have still reached record highs this year while the rest of the country has undergone an epic cost-of-living crisis and profound economic hardship,” he said.

“We know that bonuses in the financial services sector have helped the richest 1 per cent of the population to capture an increasing share of total UK incomes.

“Removing the cap would be a pro-rich ideological measure that sends a depressing message about who policymakers listen to and think about when making economic policy.”

The EU-wide cap on bankers' bonuses was introduced after the financial crash and remains in place in Britain despite the country leaving the bloc.

New Prime Minister Liz Truss has said she wants to scale back financial rules inherited from the EU which she says “hold the City, and its contribution to the entire country, back”.

Updated: September 15, 2022, 9:44 AM