The new chancellor wants to scrap the cap on bankers’ bonuses, in a move that could further widen the gulf between rich and poor as recession looms.
The cap was introduced after the 2008 financial crash – as part of moves to reduce the risk-taking that caused it – but Kwasi Kwarteng believes the rules make it harder to attract top staff to the City of London.
The Treasury says no decisions have been taken and Boris Johnson backed away from taking the step because he feared the political backlash during the cost of living emergency.
Keir Starmer had accused the then prime minister of “rolling over”, describing the idea of removing the cap as “pay rises for bankers, pay cuts for district nurses”.
The curb, introduced in the teeth of UK opposition by the EU in 2014, requires bonuses to be limited to no more than 100 per cent of fixed pay, or double that with shareholder approval.
If bonuses are uncapped, it would come as millions of workers, especially in the public sector, face real-terms pay cuts as wages fail to keep pace with inflation set to top 10 per cent.
Mr Kwarteng is anxious to boost London’s competitiveness against New York, Frankfurt, Hong Kong and Paris, according to people briefed on the discussions who spoke to the Financial Times.
One financial executive said scrapping the cap would be a “clear Brexit dividend. Something you can present as a win”.
The chancellor will deliver a mini-budget next week, having vowed to “do things differently under fresh leadership” and return annual economic growth to 2.5 per cent.
Ending restrictions on banker bonus is seen as way to boost growth and allow the UK to cut its massive budget deficit in the medium term.
The move would be framed as part of a package that is already delivering huge help to ordinary families through the two-year freeze on household energy bills.
However, it is possible that Mr Kwarteng will leave changes to the City of London to a later date – with next week’s event already set to include £30bn of tax cuts for the wealthy.
The cap has annoyed US investment banks that employ tens of thousands of staff in London, because Wall Street typically offers lower fixed salaries with big performance-related bonuses.
“The tax risks pushing the best people to the US where they can get better paid,” one financial services executive said, adding: “But it’s going to be publicly difficult to sell during a time of austerity.”
Richard Gnodde, head of Goldman Sachs’ international operations, told the Financial Times eliminating the bonus cap would make “London a more attractive place for sure”.
