The UK chancellor, Kwasi Kwarteng, is reportedly planning to scrap caps on bankers’ bonuses in a controversially timed move to attract more talent to the City of London.
A source close to Kwarteng confirmed the chancellor was considering lifting the cap but emphasised that no decision had been taken.
Ministers are known to be concerned that the City could lose out to other financial centres. The source noted that Paris was offering 30% income tax rates to attract investment banking professionals. They said the chancellor believed that UK tax revenues could be boosted if the City could attract more banking talent.
According to the Financial Times, Kwarteng wants to abolish rules imposed after the 2008 financial crash that capped bonuses at twice an employee’s salary. It is part of what he calls “Big Bang 2.0”, a post-Brexit deregulation drive to make the City more competitive.
But the idea is already being widely questioned amid predictions of a backlash at a time when many families are struggling with the cost of living.
Andrew Sentance, a member of the Bank of England’s monetary policy committee during and after the financial crisis, said it was a “very bad” time to consider increasing banker’s bonuses.
Speaking on BBC Radio 4’s Today programme on Thursday, Sentance 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.”
The High Pay Centre thinktank dismissed the plan as a “pro-rich ideological measure”. Luke Hildyard, its executive director, said: “The bonus cap has probably helped to contain bankers’ pay awards but they’ve still reached record highs this year while the rest of the country has undergone an epic cost of living crisis and profound economic hardship.
“We know that bonuses in the financial services sector have helped the richest 1% 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.”
Prof Susan Michie, the director of the Centre for Behaviour Change and a scientific adviser to the government, tweeted: “0.3% of the British electorate voted for Truss as PM. Worth remembering when evaluating her Cabinet’s policies eg 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.”
Lionel Barber, the former editor of the Financial Times, tweeted that the move would be “politically toxic”.
Kwarteng reportedly told a City executive last week that “we need to be decisive and do things differently”. He is said to be sympathetic to City complaints that EU-wide rules imposed after the crash to cap bonuses leads to higher basic salaries, which increases costs for banks.
Sources told the Financial Times that Kwarteng wants to boost the City’s competitiveness against New York, Frankfurt, Hong Kong and Paris, and their tax incentives to attract top bankers.
One financier told the paper said scrapping the bonuses cap was a “clear Brexit dividend. Something you can present as a win.”
The plan is expected to be opposed by Labour. When the idea was first suggested in June, Labour’s leader, Keir Starmer, described it as “pay rises for bankers, pay cuts for district nurses”.
