The new chancellor wants to remove the cap on bankers’ bonuses, in a move that could further widen the gap between rich and poor as recession looms.
The cap was introduced after the 2008 financial crash – as part of measures 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 made 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 British opposition by the EU in 2014, requires bonuses to be capped at no more than 100 percent of fixed pay, or double that with shareholder approval.
If bonuses are not capped, it will come as millions of workers, particularly in the public sector, face real pay cuts as wages fail to keep pace with inflation set to top 10 per cent.
Mr Kwarteng is keen to boost London’s competitiveness against New York, Frankfurt, Hong Kong and Paris, according to people briefed on the discussions who spoke to Financial Times.
A finance director said scrapping the tariff would be a “clear Brexit dividend. Something you can present as a win”.
The chancellor will deliver a mini-budget next week, having promised to “do things differently under new leadership” and return annual economic growth to 2.5 per cent.
Ending restrictions on bank bonuses is seen as a way to boost growth and allow Britain to cut its massive budget deficit in the medium term.
The move will be framed as part of a package that already provides 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 at a later date – with next week’s event already set to include £30 billion in tax cuts for the wealthy.
The cap has irked US investment banks that employ tens of thousands of staff in London, because Wall Street typically offers lower fixed salaries with large performance-related bonuses.
“The tax risks pushing the best people to the US where they can be better paid,” said one finance director, adding: “But it’s going to be publicly difficult to sell at a time of austerity.”
Richard Gnodde, head of Goldman Sachs’ international operations, said Financial Times eliminating the bonus cap would make “London a more attractive place without a doubt”.