The City of London will be better able to compete with Paris and Frankfurt for jobs and investment after the cap banker bonuses will be scrapped, Kwasi Kwarteng said as he mounted a robust defense of the controversial movement.
Kwasi Kwarteng argued for the removal of the limit, introduced by Brussels in 2014 in response to the financial crisis, which would limit a banker’s annual bonus to twice their salary. financial services sector.
He said: “We need global banks to create jobs here, invest here and pay taxes here in London, not in Paris, not in Frankfurt, not in New York.”
“All the bonus cap did was drive up bankers’ base salaries or boost operations outside of Europe. It never capped the total reward, so let’s not sit here and pretend otherwise. So we’re getting rid of it.”
Rival EU cities such as Paris have been rolling out the red carpet for bank executives and powerful Wall Street financiers since the Brexit vote, leading some to worry that London is losing its status as Europe’s financial hub when talent moves abroad.
JP Morgan, Goldman Sachs, Morgan Stanley and Bank of America have expanded their presence in the French capital in recent years, while the European Banking Authority moved from London to Paris in 2019.
Michael Spencer, a city magnate and former Tory party chairman, said removing the bonus cap will make London a more attractive place to work than the European Union. He added: “We want the best bankers to work in the UK”.
It has been speculated that ministers EU laundry rule since Brexit, after years of tension between authorities in Britain and the continent over bank payments.
In 2014, Andrew Bailey, the former head of the Prudential Regulation Authority who is now governor of the Bank of England, called the cap “the wrong policy” and warned it threatened unintended consequences for the city.
Critics of the cap have long argued that banks just got around it by raising the base salaries for employees, which they are paid regardless of how well they have performed. This increases the fixed costs of hiring a banker in London and means it is harder to reward success. Mr. Kwarteng reiterated that sentiment on Friday.
The decision is highly controversial and has been met with outrage by leftist activists and critics of the city.
Michael Barnett, a partner at Quillon Law who advised on banking scandal cases during the 2008 crash, said banker bonuses are seen as emblematic of an industry “fueled by a culture based on greed”.
He said: “For many who were scarred by the effects of the 2008 global financial crisis and the banking scandals that accompanied it, the news that caps on bankers’ bonuses may be lifted will provoke a reaction bordering on visceral.
“Banker bonuses were seen as emblematic of an imploding financial services industry fueled by a culture based on greed and profit at any cost.”
Fran Boait, executive director of campaign group Positive Money, said: “This should have been a cost of living budget, but instead it’s a banker’s budget.”
However, investment bankers are unlikely to expect huge bonus payouts this year, despite the decision. The value of UK M&A deals is 39 percent lower than last year, according to Refinitiv, and at its lowest point since 2018.
Most bankers enjoyed high paypacks during the Covid crisis after market volatility sparked a trading boom and customers raised debt and equity.
The Wall Street’s five largest banks revealed that according to Bloomberg data, at least 119 people in their UK and European businesses earned more than £4.4million last year, up from 78 in 2019.
The Treasury Department said the financial sector will be “at the heart of the government’s program to boost growth across the economy” with an “ambitious deregulation package” to be unveiled later this fall.