UK chancellor Kwasi Kwarteng is planning to scrap the ceiling on banker bonus to make London ‘more attractive’ for businesses. The cap was introduced by Brussel (with UK being part of EU then) after the 2008 financial crash.
The new chancellor told executives in meetings in London’s financial district – known as the ‘City’ – about his desire to be “decisive and do things differently” and help London win more top talent, the Financial Times reported. His plan comes as the government continues to push ahead with its landmark overhaul to City rules in the Financial Services and Markets Bill.
Banks in America continue to be known for their hard-charging culture, with heavy weighting towards bonuses in pay packets. They are also bringing workers back to the office quicker and for more days than their European peers. In response, some UK banks have attempted to lure Wall Street’s brightest with a more flexible attitude to working from home.
However, as overall pay in London still tends to be lower than in America, the bonus cap can affect UK banks’ ability to create an equivalent remuneration package for top staff.
Former chancellor George Osbourne was unable to overturn the limit in a challenge at the European Court of Justice after the cap came in at a maximum of two times salary in 2014. But the issue had not been one that the City had been lobbying on since Brexit though.
Appearing before parliament’s Treasury committee in October last year, Citigroup’s Europe, Middle East and Africa chief executive David Livingstone said, “we don’t think it’s a high regulatory priority at the moment”, when asked if the bank was looking to reform the cap.
Director for strategy and policy at banking lobby group UK Finance, Matthew Conway, told the same hearing that “none of our members are pressuring us to take this forward as a priority” and that “in three years, I haven’t had one discussion about it”.
Removing the cap, it is argued, could strengthen London’s competitiveness in the global finance industry by allowing banks to attract the best talent with the offer of higher financial package. It would also cut banks’ fixed costs as they could dish out bonuses more freely instead of increased salaries.
A veteran commentator in the financial district, David Buik said that removing, or easing, the cap was “logical”. “This move will stimulate activity in trading markets and in IPO and M&A activity, thus encouraging more banks to focus business on London, therefore delivering more taxation to the revenue,” he said.
Some experts have already said that following through with the change would be difficult politically for the government, particularly as the country faces stagflation. Critics also say it may trigger a return of the high risk behaviour that sparked the global financial crisis.
“There is never going to be a good time to do it, but if you can justify it by saying it will increase overall economic growth then we should look at it,” said a minister.
Global head of employment and incentives at Linklaters, Alexandra Beidas, said: “Individuals at banks who are subject to the bonus cap have mixed feelings about it. Some welcomed the increased fixed pay and certainty they have on their remuneration. Others would prefer to have more of their pay based on performance.” She added: “If firms use the freedom resulting from any removal of the bonus cap, this would also mean that a greater proportion of pay that bankers receive is subject to performance and reduction or clawback in the event of misconduct, failures of risk management or similar.”
andyjalil@aol.com
The writer is our foreign correspondent based in the UK
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