Newly-appointed chancellor Kwasi Kwarteng is considering scrapping the cap on bankers’ bonuses, according to reports.
The European Union-wide rule – which caps bonuses at twice an employee’s salary – was introduced in 2014 in the wake of the 2008/09 crisis, which saw banks collapse and ushered in austerity policies in the UK.
At the time, politicians argued that unlimited bonuses had helped fuel excessive risk and speculation in the banking sector, which led to the crisis.
Bankers, however, have long complained that the cap has led to higher base pay, pushing up fixed costs which cannot be adjusted in line with financial performance.
According to the Financial Times, which first reported the story, Kwarteng is understood to want to scrap the rule to boost the City’s global competitiveness. The FT said the chancellor believes it would make the City a more attractive destination for foreign bankers, and would be part of a package of reforms post Brexit.
The newspaper said Kwarteng told City executives last week: “We need to be decisive and do things differently.”
The Treasury has declined to comment ahead of next week’s mini-Budget.
While the City has long dismissed the cap as a blunt instrument, the move is likely to be controversial should it go ahead.
Andrew Sentance, a former member of the Bank of England’s Monetary Policy Committee, told the BBC on Thursday that the proposal “sends a rather confused signal when people are being squeezed in terms of the cost of living, and the government is trying to encourage pay restrain in the public sector.
“There may be some longer-term arguments for pursing this policy but I think the timing would be very bad if they did it now.”
Next week’s fiscal statement will cost the government’s recently-announced intervention to help households and businesses with the energy crisis. It is not clear if Kwarteng will also announce any City reforms at the same time.