It’s time to scrap the cap on bankers’ bonuses

Critics say that scrapping the cap on bankers’ bonus will encourage a return to excessive risk taking. It will provoke retaliation from the European Union, they warn. And perhaps, worst of all, it could prove fatal politically, rewarding a few rich Tory friends while the rest of the country struggles with the cost-of-living crisis. Chancellor Kwasi Kwarteng will get lots of criticism if, as predicted, he does decide to bin the cap in his upcoming financial statement. Even so, he should ignore the naysayers.

It will certainly be a controversial move. The controls on City bonuses were imposed right across the EU in the wake of the crash of 2008/2009. These rules limit the amount that traders and bankers can earn in relation to their basic salaries. Behind it was the idea that bonuses had created a culture of excessive risk-taking that led to the crash. In fairness, there was an element of truth in that suggestion, even if it was hard not to suspect there was also an element of envy involved as well.