Britain’s standing in the EU is lower than ever, and the UK yesterday admitted defeat in the latest spat. Should Britain ever have challenged the bonus cap?
The Bank of England thinks the bank bonus cap does more harm than good.
British institutions such as Barclays took a pummeling in the US when they cut bonuses, losing staff to rivals.
And lawyers and economists around the world saw the potential damage the EU’s limits on bankers’ pay could do to the financial sector, and Europe’s wider economy.
But when the EU’s top lawyer spoke out against Britain’s challenge to the cap, it was George Osborne who took the flak. He conceded defeat last night.
“While working people face a cost-of-living crisis and lending to business is falling, it’s astonishing that George Osborne’s priority has been to spend taxpayers’ money, fighting a cap on bankers’ bonuses,” crowed Labour’s Cathy Jamieson.
She again promised to tax bonuses – though there will be far less to tax, thanks to the cap.
The EU cap limits bonuses at the same size as a banker’s salary, or double the salary if shareholders agree.
Osborne said it would result in higher fixed pay, which is harder to claw back when something goes wrong, and makes banks’ finances less flexible.
Indeed, most big lenders have already started giving out so-called fixed allowances – awards of cash or shares on a monthly or quarterly basis, which can be altered more easily than salaries.
They are designed to avoid the bonus cap, by topping up fixed pay. These are the next battleground – the European Banking Authority has come out against them, as they undermine the spirit of the cap.
But the Bank of England, which polices the rules, has given them a reluctant thumbs up as the least-worst option. It is a bloody and prolonged battle, with nobody coming out well.
Should Osborne have taken the banks’ case to the EU?
Campaign group TheCityUK says yes.
“These rules apply to UK banks regardless of where they do business in the world. Competitors can offer pay packages unhindered by these restrictions and can therefore be more competitive,” said its boss Chris Cummings.
And the British Bankers’ Association pushed for a firm stance: “This law runs counter to recent reforms and will make the system less robust by incentivising firms to increase fixed pay.”
The Institute of Directors (IoD) said it showed the wider damage being done to the finance sector by EU rules. Britain has lost other legal cases, including on the financial transactions tax and the powers to ban short-selling.
“If the UK loses all of its test cases on the recent spate of legislation pertaining to the financial sector, the implications for how our influence in the EU can be measured are significant,” said the IoD’s head of Europe Allie Renison.