Kwasi Kwarteng SCRAPS caps on bankers’ bonuses saying its the only way to allow London to compete with New York, Paris and Frankfurt- despite claims he is reigniting a ‘culture of greed’
- The limit was introduced by the European Union after the 2008 financial crisis
- Set at 100 per cent of their salary, or 200 per cent with shareholder approval
- Kwarteng said it was having little positive effect and was hindering investment
Kwasi Kwarteng over-rode a storm of protest to lift the cap on bankers’ bonuses today, saying it was necessary to allow the City to compete in the global financial marketplace.
The limit – set at 100 per cent of their salary, or double with shareholder approval – was introduced by the European Union after the 2008 financial crisis.
But the Chancellor today said it was having little positive effect and was hindering London’s attractiveness as an investment destination.
He told MPs the move would encourage global banks to create jobs, invest, and pay taxes in the City.
Pay in bonuses aligns the incentives of individuals with those of the bank, therefore supporting growth of the UK economy, the Government added.
‘A strong UK economy has always depended on a strong financial services sector,’ Mr Kwarteng told MPs.
‘We need global banks to create jobs here, invest in London, and pay taxes in London, not Paris, not Frankfurt, not New York. All the bonus cap did was to push up the basic salaries of bankers, or drive activity outside Europe.
‘It never capped total remuneration, so let’s not sit here and pretend otherwise. So we’re going to get rid of it.
The limit – set at 100 per cent of their salary, or double with shareholder approval – was introduced by the European Union after the 2008 financial crisis. But the Chancellor today said it was having little positive effect.
‘A strong UK economy has always depended on a strong financial services sector,’ Mr Kwarteng told MPs. ‘We need global banks to create jobs here, invest in London, and pay taxes in London, not Paris, not Frankfurt, not New York (pictured)’.
‘And to reaffirm the UK’s status as the world’s financial services centre, I will set out an ambitious package of regulatory reforms later in the autumn.’
Shadow chancellor Rachel Reeves said: ‘The Chancellor has made clear who his priorities are today – not a plan for growth, a plan to reward the already wealthy. A return to the trickle-down of the past, back to the future, not a brave new era.’
Campaigners have pointed out that bankers’ pay-outs will soar during a time when many households are facing rising living costs and amid a swathe of strike action in efforts to raise pay.
Trade union Unite’s general secretary Sharon Graham said: ‘This mini-budget is unashamedly a budget for the rich, big business and the City – highest earners’ tax slashed, corporation tax slashed, investment bankers’ bonuses let rip.’
Gary Smith, GMB general secretary, said: ‘We need to bring inflation under control and build a modern manufacturing base that creates good jobs at home and enhances our national security.
‘Instead the Chancellor has chosen to pour money into the hands of rich multinationals.
‘The Chancellor is tough on care workers’ pay rises and soft on bankers’ bonuses.’
Former Chancellor George Osborne was criticised by the Labour Party in 2014 for launching a legal battle to block the bankers’ bonuses that cost taxpayers tens of thousands of pounds.
At the time, Mr Osborne faced similar criticism for his timing in fighting the restrictions when many households across the UK were facing worsening living standards.
The City has long opposed the bonus cap which opponents say meddles with investment banks favoured model of lower fixed salaries and annual performance-related bonuses.
The Chancellor reiterated on Friday that the consequence of the cap was driving up bankers’ salaries so that they could qualify for bigger bonuses, as well as driving talent out of the UK to countries like the US where there are no such restrictions.
Others have pointed out that banks will now have to work through numerous logistical considerations due to the sudden decision from the Treasury.
Phillippa O’Connor, reward and employment leader at PwC UK, said: ‘Removing the bankers’ bonus cap will deliver greater flexibility for UK banks in how they structure the remuneration packages of their senior staff and therefore the potential to reduce fixed costs, both of which arguably could drive competitive benefit to the UK.
‘However, this flexibility will also give rise to numerous policy, legal and operational issues which firms will need to consider in detail before making any changes.
‘It will not be easy for firms to unwind the increase in fixed pay which has been embedded in pay structures and policies over the last eight years.’
The Chancellor also confirmed that the bank surcharge – a charge on the profits of banks exceeding £25 million – would remain at 8 per cent.
The surcharge was previously set to fall to 3 per cent in April 2023.
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