Kwasi Kwarteng’s proposal to remove the cap on bankers’ bonuses is an odd political fight to pick. Inflation at 9.9% is tearing chunks out of the real-terms pay packets of the vast majority of the population who never get a sniff of a bonus, even in good times. The idea that freedom to shower bigger bonuses on City bankers represents a “Brexit dividend” will strike many as ridiculous or offensive. The optics, in political lingo, are terrible.
But here’s the thing: on the pure logic of the matter, the chancellor has a point. The design of the European Union’s bonus cap was always clunky and there is no evidence it has reduced risk-taking by banks, which was meant to be the aim. The problem, as rehearsed here at the time, is that the “waterbed principle” applies: push down in one area of pay and another goes up.
