No U-turn from Jeremy Hunt on scrapping bankers’ bonus cap
The new chancellor, Jeremy Hunt, is pressing on with plans to scrap the bankers’ bonus cap, protecting one of the most divisive policies from his predecessor’s disastrous mini-budget.
Hunt made no mention of the EU-imposed cap, which limits payouts to two times bankers’ salaries, in his economic update on Monday in which he reversed nearly all of Kwasi Kwarteng’s 23 September announcements.
However, a Treasury source told the Guardian the cap would still be removed. They explained that it was not included in Hunt’s list of policy U-turns, which included scaling back tax cuts and the energy price guarantee, given that it did not impact state finances.
The decision to ditch the bonus cap as planned will raise eyebrows, even across the City, where bosses say it is unlikely to result in substantial changes to pay, or attract high-flying bankers, and could instead damage lenders’ reputations with the general public during a cost of living crisis.
The cap was part of reforms introduced in the wake of the 2007/8 banking crash, and was meant to stamp out a bonus culture blamed for encouraging short-term profits over longer-term stability. The hope was that, with less of an individual’s pay riding on performance, there would be less incentive for risky behaviour.
The UK strongly opposed the legislation, which came into force in 2014, with the then chancellor, George Osborne, even attempting to overturn it at the European court of justice. The Bank of England also warned at the time that the cap would lead to a rise in fixed salary costs and squeeze bank finances.
The move did raise fixed salaries, but those extra costs have rarely been blamed for harming lenders’ balance sheets.
Kwarteng first announced the plans to scrap the cap in the
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