A cap on banker’s bonuses could be scrapped by the UK government in an effort to make the City of London more competitive in the post-Brexit and post-pandemic economy, according to The Times.
The idea is reportedly not yet part of any public consultations amid fear of a possible backlash from the electorate, however, the strategy has apparently gained support from some Treasury officials as a way to attract bankers and financial executives to the Square Mile and away from other European hubs such as Dublin, Paris and Frankfurt.
Ditching the bonus cap would also mark a diversion from EU rules that originally introduced the policy in 2014, potentially allowing the government to bolster its Brexit credentials with the Eurosceptic wing of the Tory party, as well as a number of party donors.
However, the move will likely cause an outcry among many others given the large amounts of government spending during the pandemic and a sentiment that corporations who have raked in massive profits during the disruption should help fund the recovery through taxation rather than funnelling cash into the pockets of their bankers.
The plans may also face opposition from the Bank of England, with governor Andrew Bailey having said previously that the central bank is not supportive of unlimited pay for City financiers, but may instead push for performance-related incentives promoting “good behaviour” in the sector rather than risky activities attributed to causing the 2008 crash.
Banking investors, however, may back the plans should they be introduced given the imposition of the cap in 2014 often resulted in many banks raising the basic rate of pay for bankers, heavily increasing fixed costs for firms that can see large revenues swings depending on market conditions.
Despite the controversy the plans may attract, shares in the LSE’s UK-focused banks were mostly higher in lunchtime trading on Monday, with Lloyds Banking Group PLC (LSE:LLOY) up 0.7% at 45.9p while Barclays PLC (LSE:BARC) climbed 1.5% to 177.1p and NatWest Group PLC (LSE:NWG) jumped 1.8% to 206.1p.