The cap on City bankers’ bonuses could be scrapped under plans reportedly being considered by Chancellor Kwasi Kwarteng.
According to the Financial Times, Kwarteng wants to lift the cap, which was introduced in the EU after the 2008 financial crash, to help make London a more attractive destination for global talent in the finance sector.
Currently bankers’ bonuses are capped at double their annual salary. This means that top talent might consider looking for jobs elsewhere, such as in the US or Asia, where they may be able to earn more.
It has been suggested the bonus cap forces up the base salaries of City-based staff, leading to higher fixed costs for employers who are unable to award higher performance-related packages.
The proposed scrapping of the bonus cap has received strong backlash, especially at a time when many workers are struggling with the cost of living.
Andrew Sentance, a member of the Bank of England’s monetary policy committee during and after the financial crisis, told BBC Radio 4’s Today programme: “It 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 restraint in the public sector.
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“To appear to allow bankers to have bigger bonuses at the same time, doesn’t look very well timed. There may be some longer-term arguments for pursuing this policy, but I think the timing would be very bad if they did it now.”
TUC general secretary Frances O’Grady said: “While City executives rake it in, millions are struggling to keep their heads above water.
“Working people are being walloped by soaring prices after the longest and harshest wage squeeze in modern history. The Chancellor’s number one priority should be getting wages rising for everyone – not boosting bumper bonuses for those at the top.”
Kwarteng, who is preparing to announce a mini-Budget next week, reportedly told a City executive that “we need to be decisive and do things differently”.
Sources told the FT that he wants to boost London’s competitiveness against other major financial districts including New York, Frankfurt, Hong Kong and Paris, which offer tax incentives to attract top bankers.
Meanwhile, investment bank Citigroup has opened a new office for junior staff in Malaga, Spain, in order to attract talent who do not wish to work the financial services sector’s traditionally long hours.
Staff in Malaga will work eight-hour days with no weekend work for around half of the $100,000 (£86,000) starting salary offered for the same roles in London and New York.
When the office was announced in March, Manolo Falcó, Citi’s co-head of banking, capital markets and advisory, said: “Low levels of junior banker retention are being seen across the industry, and the message is clear: the key driver behind many junior-level departures is the search for a better work-life balance. At Citi, we are listening.”
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