The UK's financial regulators have formally scrapped the banker bonus cap, removing one of the key reforms introduced by the EU in the wake of the 2008 financial crisis.
The Bank of England and Financial Conduct Authority (FCA) confirmed that the cap would disappear on 31 October, nearly a year after Liz Truss's short-lived government first revealed plans to ditch the rules in a bid to attract more investment and shed EU rules post-Brexit.
Three thoughts. First, Liz Truss' friends in the Institute of Economic Affairs are still causing harm, a year after being given access to power for just a few weeks. The need to be vigilant continues.
Second, there is no reason for this beyond a pandering to the greed of bankers and the whims of those researchers they fund or are in cahoots with. Banker's bonuses should be properly described as economic rents - which are the sums extracted by those with economic power in excess of the return that a genuinely free market would pay. So, let's not pretend that there is economically virtuous about this. These ‘rewards' are exploitative.
Third, nor should we on any way think that these payments encourage entrepreneurship. That requires that a person put their capital at risk. The bankers being paid these sums are employees using other people's capital, often recklessly, and all the time to participate in something little better than a casino to no overall gain to society.
Arguments for relaxing bankers' bonuses are bankrupt. But the Tories have done it anyway. They will probably be trumpeting it as a Brexit win next.
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Won’t the banking system continue to move towards Paris and Frankfurt otherwise? You might say fine this does not matter but try telling that to the 1000s of tradesman who benefit from their custom.
First, banks move because of bigger issues than this.
They have moved because of Brexit and not because of bonuses, so that is the issue to be resolved.
And please don’t say you really believe in trickle down economics: that myth was shattered years ago.
What we really need are community banks like the German Sparkassen network so profits can go back to the communities which make them and not be creamed off by pseudo-respectable parasites. I try to raise this idea on local FB groups every now and then and am met with universal indifference, a sign, I’m sure, of the lamentable and quite deliberate lack of education in these matters.
Thank you, Bill.
I was involved with trying to set up such a net work plus a larger version like the German KFW and even an agricultural version and German craft guilds, but St Vince preferred to grandstand. The unions were not interested.
This is naked greed as well as naked wilful ignorance of the facts that shows who the Tories pander to.
This is kamikaze politics, nihilistic, couldn’t care less, grab as much as we can as we go down the drain political sabotage.
It also shows contempt for the facts and most of all contempt for us and our system of democracy.
How anyone but the self interested can vote for these fuckers beggars belief.
Hum so bankers bonus’s are now unlimited at the same time as ITV News are running stories on destitution
https://www.itv.com/news/2023-10-24/destitution-doubles-in-five-years-with-38-million-unable-to-meet-basic-needs
According to the BBC, one reason to scap the limit was:
There was also less room to vary employee pay due to “material poor performance or misconduct”, the regulators said.
Have they never heard of disciplinary and capability procedures? Or are bankers too important to be subject to that kind of employment control?
The Tories clearly have a special task force set up to extract as much wealth from the country in as many ways as they possibly can before calling an election at the last possible moment.
We can expect more of this jaw-droppingly cynical activity in the next twelve months.
Thank you and well said, Richard.
As prudential and financial stability policy lead at banking and buy side trade bodies, I was involved with the lobbying against such restrictions. We failed to prevent the bonus cap for banks, thanks to scandal breaking on the morning of the vote and the right wing European People’s Party defecting from the no camp in the European Parliament, but just avoided it for asset managers.
It was amazing and alarming in equal measure to hear the leadership of the big UK banks say that lending to SMEs would dry up if the cap was implemented and people who one would expect to know better, including Bailey, fall for or play along with that nonsense.
The week before the vote, I sat on a conference call with the leaderships of the big City firms, Treasury and regulators and heard the special pleading. As so many government officials wanted to join City firms, not just after retirement, they went along.
I knew Blairites and Brownites were, to use a French term, racaille, before I did these jobs, but to see their sucking up to the City was disgusting. If Labour Party members and supporters knew what they are really like, that party would have been reduced to a rump in 2010. Not even the Tories were as bad. This included Brown and his organ grinder Balls asking for the names of regulators making life difficult for City firms, something my employer counselled its members against.
The change won’t change the total compensation in the system, just move it around a bit from salaries into bonuses.
There will be some concentration of income into good performers while lesser achievers could see lower income of salary only.
Inequality within the industry will rise.
And tax receipts are predicted to rise.
Let me be blunt: I do not believe you.
Thank you.
Blunt is good.
Alisha
I don’t understand your logic. The change won’t change the total compensation within the system, but tax receipts are predicted to rise. Please could you explain how that works?
Thank you, Alisha.
Please explain as I am a bankster and, as per my other comments, was involved with fighting the proposals.
Sorry Colonel Smithers
I explained in detail how the likelihood of a fixed pie of compensation or profit if you like from the investment banking sector could lead to greater inequality of income within that sector if employers had more flexibility how to pay their best staff more and lesser talents less.
That doesn’t begin to consider if the sector would generate more or less added value due to this incredibly minor piece of liberalisation.
Didn’t make it through mod unfortunately.
I told you – I don’t believe you
You have all the appearance of a hired troll
Would you like to know the names of my sponsor and what the pay rate per post is for getting classical liberal or non-socialist posts through to publication on your remarkable blog?
There is no fee big enough
But I am pleased to see you understand the system and so prove who you are
Part right, part wrong.
Prior to the cap a trader might have a base salary of 100k and a more experienced trader sitting next desk might have a base of 150k. At year end, ‘total compensation’ would be determined by management according to many things but mainly profit. Both might have got 400 ‘total comp’ so trader A got 300k bonus, B got 250k. Nobody spoke of salary and bonus – just total comp. The idea being that in bad years the firm was not locked in to high fixed salaries and could give no bonus.
With the bonus cap base salaries went to 250k and total comp was largely unchanged. Did it cut risk taking? Perhaps one or two big punters switched to unregulated firms… or even left Europe but the vast majority stayed put under the new regime with no major shift in pay or behaviour.
The problem with removing the cap is that base pay will not be cut!
The real issue is that “economy critical ” activity and “gambling” are all under the same roof. They were merged by Thatcher in the face of 3,000 years of experience…. and we see the cost now.
On the same day that the Tories announced this, they also announced that the law to stop “No fault evictions” for renters was to be put on hold indefinitely. Landlords, (and about 30% of Tory grifter MP’s are Landlords) will no doubt be cheering.
Bigger bankers bonuses and cheering landlords, it shows where the Tories priorities are.
Thank you.
I thought it was a bigger % of MPs and included opposition ones, but the intake of Tory red wall MPs has changed figures. Red wall Tory MPs tend not to be as well off.
@ Richard: Further to your headline and speaking from experience, I would add corrupt.