Bankers wary of backlash if Britain ditches bonus cap to cut EU ties

LONDON: Scrapping a cap on banker bonuses would be the strongest signal yet that Britain’s new Prime Minister wants to ‘unshackle’ London from EU rules, but risks public outcry while potentially doing little to bolster the City’s short-term appeal.

London’s financial hub was largely cut off from the European Union by Brexit, overnight turning Amsterdam into Europe’s biggest share trading centre and prompting calls for speedy reforms to keep Britain’s capital market globally competitive.

Now, with Liz Truss as Prime Minister, her new finance minister Kwasi Kwarteng wants a ‘Big Bang 2.0’, a reference to deregulating Britain’s stock market in the 1980s, with scrapping the bonus cap now on the table.

The cap, which was slipped into EU law at the last minute by the European Parliament, has hitherto been thought too politically sensitive to tamper with as Britain, home to most of Europe’s top paid bankers, faces a cost of living crisis.

UK’s recession-threatened economy wins respite

Mindful of such criticisms, bankers have quietly lobbied to ease a levy on their balance sheets and a surcharge on their profits, a more difficult step for a cash-strapped government.

“The new government’s priority right now should be raising incomes for the lowest earners, not City fat cats,” said Fran Boait, executive director at Positive Money, which campaigns for a fair financial system.

The finance ministry had no immediate comment on the cap.

Introduced in 2014, the cap limits bonuses to twice basic pay with shareholder approval, and was in response to public anger after taxpayers bailed out banks, including Lloyds and Royal Bank of Scotland, during the 2007-09 financial crisis.

But the Bank of England (BoE) signalled backing for scrapping the cap on Thursday, saying it did not support the policy when it was introduced and that alternatives already in place were more effective in curbing excess risk-taking.

“The Senior Managers Regime and remuneration rules requiring deferral of bonus payments are more effective tools for ensuring bankers take proper account of risks,” a spokesperson for the BoE said.