Bonus limits in the financial industry will be removed to make London more attractive to global banks, the Chancellor of Kwasi Kwarteng has announced.
The restrictions, introduced by the European Union after the 2008 financial crisis, limit bankers’ annual payments to twice their salaries.
The end of the move was confirmed as part of Mr Kwarteng’s so-called mini-budget which aims to bounce back from the cost of living crisis through a ‘growth-focused’ policy.
A massive government support package to keep household energy bills frozen at £2,500 on average was confirmed along with tax cuts and other policies.
He promised the strategy would turn the ‘vicious cycle of British stagnation into a cycle of virtuous growth’.
The ‘supply side’ reforms are like a big ‘build England’ push with new housing and infrastructure projects.
Mr Kwarteng also hinted that he would relax regulations on banking activities in the coming weeks.
Labor attacked the Tories for potentially allowing bankers’ incomes to swell as families face the biggest cost-of-living pressures in a generation this winter.
But economists say many companies have overcome the limit by paying higher base salaries, pushing up bank fixed costs and making the UK less attractive for investment than the US or Asia.
Mr Kwarteng told Commons: ‘A strong UK economy has always depended on a strong financial services sector.
‘We need global banks to create jobs here, invest here and pay taxes here in London. Not in Paris, not in Frankfurt, and not in New York.
‘All the bonus caps do is to increase the base salaries of bankers or encourage activity outside Europe.
‘It doesn’t limit the total remuneration, so as a consequence of this we will get rid of it.
He added: ‘To reaffirm the UK’s status as the world’s financial services sector, I will set out an ambitious package of regulatory reforms later in the fall.’
Labor’s shadow chancellor, Rachel Reeves, did not directly comment on the decision but accused the government of “protecting” the profits of energy providers and bankers’ salaries while “piling on a heavy burden.” [of its support package] to the taxpayer’s back.
He said: ‘Where have the last 12 years left us? Lower growth, lower investment, lower productivity – and today, we learn, the lowest consumer confidence since records began.
‘The only things that went up were inflation, interest rates and banker bonuses.
‘As Tories become increasingly detached from reality, millions of people lie awake at night worrying about how they will make ends meet.
Prior to the announcement, former Bank of England monetary policy committee member Andrew Sentance said lifting the limit might benefit the economy in a few years but “the timing is not right”.
He told BBC Radio 4: ‘It sends a rather confusing signal when people are stuck in terms of the cost of living and the Government is trying to push pay limits in the public sector’.
‘So it seems that allowing bankers to get bigger bonuses at the same time doesn’t seem timely.
‘There may be some long-term arguments for pursuing this policy, but I think the timing would be very bad if they did it now.’
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Source : metro.co.uk