Labour will not reinstate a cap on bankers’ bonuses if it wins the next election, the shadow chancellor has said.
Rachel Reeves said she had “no intention” of bringing back the cap, saying she wanted to be the “champion of a thriving financial services industry”.
The regulations, which limited annual bonus payouts to twice a banker’s salary, were introduced by the EU in 2014, in a move aimed at preventing excessive risk-taking after the 2008 financial crisis.
In 2022, the then chancellor, Kwasi Kwarteng, announced that he would be removing this rule as part of his now infamous mini-budget amid Liz Truss’s short tenure as prime minister.
The decision received widespread criticism for rewarding bankers and failing to address cost-of-living concerns affecting households across the UK.
However, it was one of the few mini-budget policies to be kept under Rishi Sunak’s leadership, with the new rules coming into force in October last year.
Unions claimed Sunak was fuelling a “greed is good” culture in the City of London. The cap originally limited bonuses to two times bankers’ salaries, giving the average City worker an opportunity to pocket as much as £120,000 extra, equivalent to about seven times the average pay of a care worker, the Trades Union Congress said.
Momentum, a grassroots organisation of the party’s leftwing, said: “This is a terrible decision totally out of touch with Labour’s values and public opinion. For over 40 years our economic model has sucked wealth from the country and enriched a few in the City.
“It even crashed the economy in 2008. Yet instead of learning the lessons from New Labour’s failures, Starmer and Reeves seem determined to repeat them.”
Labour has previously criticised the Tories for removing the cap, saying it was “out of touch” with the British public.
Darren Jones, the shadow chief secretary to the Treasury, said in October, after the lifting of the cap: “‘At a time when families are struggling with the cost of living and mortgages are rising, this decision tells you everything you need to know about the priorities of this out of touch Conservative government.”
Reeves told the BBC on Wednesday: “The cap on bankers’ bonuses was brought in in the aftermath of the global financial crisis and that was the right thing to do to rebuild the public finances.
“But that has gone now and we don’t have any intention of bringing that back. And as chancellor of the exchequer, I would want to be a champion of a successful and thriving financial services industry in the UK.”
Labour said on Tuesday that it planned to cut swathes of red tape in the financial services sector, while “unashamedly championing” the industry.
In a 24-page document, seen by the Guardian, Labour has promised to cut down 10,000 pages of regulations and ruled out a windfall tax on bank profits.
Reeves defended the move, insisting it was not about watering down protection for consumers or the UK’s financial stability.
Labour will formally announce its plans to harness the strengths of the financial sector to City bosses at its business conference in London on Thursday.
To counter the growing support across industry and the City for Labour’s pro-business stance, Sunak has recruited chief executives from some of the UK’s largest companies to advise him and “help drive the government’s growth agenda”.
The prime minister said a number of bosses from a wide range of industries would attend a new business council, including the chief executives of BT, Nationwide, Unilever and Greggs.
Sunak said: “Coming from a small business family, I know how integral business is to communities and the wider economy. Without the jobs, growth, and innovation created by UK firms, the country simply wouldn’t function.
“That’s why I’m getting businesses in for a regular update on how well we are doing in delivering for business – straight from the shop floor.”
