City sceptical about benefits of scrapping cap on banker bonuses
When City of London executives were summoned to No 11 Downing Street earlier this month, they were promised reforms that would boost growth, attract talented bankers and usher a new era of prosperity for financial services.
But what the chancellor, Kwasi Kwarteng, failed to mention to bank bosses was that their pay would become a lightning rod for controversy in the mini-budget that followed.
Sources at some of the largest banks in the City admit they were baffled by Kwarteng’s plan to lift the EU-imposed cap on banker bonuses on Friday, a move they had not lobbied for, and do not expect will result in widespread changes to pay packets.
One source at a major UK bank explained that while the budget was “tonally pro-City”, changes to banker bonuses were “not something we were asking for”.
That was despite Kwarteng suggesting the scrapped cap – which has limited payouts to two times bankers’ salaries since 2014 – would spark fresh investment from global banks. He claimed the move would create more higher-paying jobs that could boost tax takings “here in London. Not Paris, not Frankfurt, not New York.”
But even major US lenders – which were among the firms Kwarteng was trying to woo – felt they were on the back foot once the measures were leaked, with one source saying it “came out of the blue”. “I don’t think any banks were truly asking for this,” they said. “They didn’t consult the banks, they just went ahead and did it.”
While the Bank of England is expected to publicly consult on the changes, any overhaul could take years to implement, as banks try to manage their reputations and any potential backlash from investors, or even their own staff.
In the UK, pay committees will have to consider whether reducing salaries in lieu of
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