15 September 2022

The chancellor is considering scrapping caps on bankers’ bonuses

The chancellor is facing stiff backlash for the plan due to the cost of living crisis but argues it will aid the economy.

Kwasi Kwarteng, the UK chancellor, is reportedly planning to scrap caps on bankers’ bonuses in a move to attract more top bankers to the city of London.

As reported by the Financial Times, a source close to Kwarteng emphasised no decision has been taken as of yet but confirmed the chancellor was considering lifting the cap. The decision comes after ministers reportedly became concerned that the city could lose out to other financial centres. According to the source, Paris is offering 30% income tax rates to attract investment banking professionals. They stated the chancellor believes that UK tax revenues could be boosted if London can attract more banking talent.

Kwarteng supposedly wants to abolish rules brought in after the 2008 financial crash that capped bonuses at twice an employee’s salary. It’s part of a post-Brexit deregulation drive intending to make the city more competitive, which Kwarteng calls the “Big Bang 2.0.”

However, the possibility of the idea coming to fruition is already being questioned amid predictions of a backlash due to the ongoing cost of living crisis. Andrew Sentance, a member of the Bank of England’s monetary policy committee, said it was a “very bad” time to consider increasing banker’s bonuses. On a recent appearance on BBC Radio 4’s Today programme, Sentence said: “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.”

“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,” he continued.

Professor Susan Michie, the director of the Centre for Behaviour Change, also chimed in after tweeting: “0.3% of the British electorate voted for Truss as PM. Worth remembering when evaluating her Cabinet’s policies e.g. the trailed scrapping of anti-obesity measures & lifting the cap on bankers’ bonuses (which is already 2x their salaries) whilst asking others for wage restraint.”

Meanwhile, the former editor of the Financial Times, Lionel Barber, tweeted that the move would be “politically toxic.” Sources told the Financial Times that Kwarteng wants to boost London’s competitiveness against New York, Paris, Frankfurt, Hong Kong and Paris, citing their tax incentives to attract top bankers.

Kwarteng’s plan is expected to be opposed by labour. When the idea was first brought up in June, Keir Starmer described it as “pay rises for bankers, pay cuts for district nurses.”

  • Writer Chris Saunders
  • Banner Image Credit Sky News

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