Is this really the moment to scrap bankers’ bonuses?

Chancellor Kwasi Kwarteng – keen to sharpen the City’s competitive edge, we’re told – wants to remove the legislative cap, imported from Brussels in 2014, that limits bankers’ bonuses to 100 per cent of their base salary, or up to 200 per cent with shareholder approval. That raises interesting questions. Was the cap a good idea in the first place? If not, why wasn’t it binned as soon as we left the EU? Is now the ideal moment to do so? And are bankers still a breed of greedy bastards?

The answer to the first question is certainly not. This column called the cap a ‘boneheaded’ measure that would merely provoke wily moneymen to find ways of gaming an unwelcome restraint on their wealth. Its stated aim was to discourage a return to the excessive risk-taking of the mid-2000s, but banks themselves claimed it increased risk by adding to their fixed costs as base pay rose accordingly. The then chancellor George Osborne challenged it in the European Court but was beaten back. The scheme’s promoters and true believers were left-leaning MEPs – led by a British Lib Dem, Sharon Bowles, now luxuriating in the House of Lords – whose real aim was to punish the Anglo-Saxon financial community for the sins that preceded 2008.

As to why the cap still applies, 20 months after we left the EU, the answer is that scrapping it during Covid would have looked wildly insensitive and it was probably never on Rishi Sunak’s agenda. Does that make now the right moment? Of course not, but Kwarteng needs markets onside for his borrowing plans and can argue that the City must be free to compete with New York on all fronts, including pay. If he scraps the cap later, when hardship is more widespread, the public response will be even more hostile.