The Chancellor Kwasi Kwarteng is reportedly considering scrapping the cap on City bankers’ bonuses to encourage City competitiveness.
Whilst no final decisions have yet been made, it has been suggested that the move could make London a more attractive destination for the finance sector.
Currently, bankers’ bonuses are capped at two times their annual salary - and covers bonuses whether they are in the form of cash or shares. The cap was introduced in 2014 after the fallout of the 2008 financial crash - when the bonus culture within the finance industry was thought to have encouraged bankers into taking excessive risks - and was part of a set of regulations known as the Capital Requirements Directive.
However, there are some that argue that the cap inflates base salaries of City-based staff, which leads to a higher fixed cost base for employers, as they are unable to award variable pay based upon employee - and company - performance.
The proposal to scrap the bonus cap has nevertheless received strong backlash, as it comes at a time when so many are struggling with the cost of living.
General Secretary of the TUC, Frances O’Grady’s view is that:
“The chancellor’s No 1 priority should be getting wages rising for everyone - not boosting bumper bonuses for those at the top.”
During a discussion on BBC Radio 4’s Today programme, Andrew Sentence - who was a member of the Bank of England’s Monetary Policy Committee during and after the financial crisis - said:
“I think 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.”
He added:
“To appear to allow bankers to have bigger bonuses at the same time, doesn’t look very well timed. 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.”
Although Mr Kwarteng is expected to announce a mini-budget in the next few days to help the country as it faces soaring costs, it is unclear yet whether an announcement on executive pay and bonuses would be announced in that “fiscal statement”, or as part of more measures later on.
