Chancellor says scrapping cap on bankers’ bonuses will bring jobs to London from Frankfurt

Removing the cap on banker bonuses will boost investment and help the economy grow, the Chancellor argued as he defended the decision against warnings that would lead to risky financial decisions.

Kwasi Kwarteng has been snubbed by opposition MPs as he confirmed reports of plans to remove the cap on bankers’ bonuses as part of post-Brexit deregulation measures.

Critics have said EU-wide rules capping bonuses at twice an employee’s salary are pushing up base wages and mean the UK has not been an attractive location for banks.

However, those who warned against the move said the cap introduced in 2014 was put in place to discourage bankers from making the kind of risky financial decisions that led to the 2008 crash.

The government argued that allowing unlimited bonuses aligns bankers’ incentives with those of their employer, which promotes economic growth.

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But Michael Barnett, a partner at Quillon Law who worked on cases during the 2008 financial crisis, said the decision was reminiscent of the economic environment that led to the crash in the first place.

“Bankers’ bonuses were seen as emblematic of an imploding financial services industry fueled by a culture based on greed and the pursuit of profit at all costs,” he said.

“Bonuses and other financial incentives formed a key component of many lawsuits that were brought to court, whether successful or not.”

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Financial services giant PwC said removing the cap would offer “greater flexibility for UK banks” and offered “the potential to reduce fixed costs”. […] which arguably could bring competitive advantages to the UK”.

And Ryan Shorthouse, chief executive of centre-right think tank Bright Blue, argued the announcement was a political decision to show that the new chancellor wanted to “send dramatic signals” that the government was “changing course and going for growth”. .

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“The most controversial measures – cutting the additional tax rate, corporate income tax and capping bankers’ bonuses – are unlikely to have any major economic impact, but they are politically impactful: reinventing the Tory brand, dissolving the left and presenting this government as shameless business,” he said.

But the move drew criticism from charities, which argued bankers’ wages would skyrocket while households struggled to make ends meet, creating a further divide between rich and poor.

Becca Lyon, head of child poverty at Save the Children, said: “Chancellor has prioritized bankers’ bonuses rather than helping vulnerable children through the cost-of-living crisis, whose hard-working parents are faced with impossible choices.”

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Labour’s Shadow Chancellor Rachel Reeves said the Chancellor “made it clear what his priorities are. Not a plan for growth, a plan to reward the already rich.”

The Chancellor said: “We need global banks that create jobs here, invest in London and pay taxes in London, not in Paris, not in Frankfurt, not in New York. The bonus cap has only pushed up bankers’ base salaries or boosted activities outside of Europe.

“It’s never capped total compensation, so let’s not sit here and pretend it’s any different. So we’re going to get rid of it.”

He added: “And to reaffirm the UK’s status as the world’s financial services hub, I will present an ambitious package of regulatory reforms later in the autumn.”

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