BORIS Johnson last night told City A.M. that “we don’t need Europe butting in on bonuses,” as he launched a staunch attack on the EU’s plan to cap bonuses at the same level as salaries.
“I’ll always be the first to defend the City – we need to remain competitive,” said the Mayor, as he defended London banks’ right to pay their workers what they want. Negotiations have heated up in recent days as politicians try to hammer out a deal on new reforms.
Johnson fears a cap would have unin- tended consequences, pushing up salaries and making the sector less flexible. It is understood the Mayor’s office is also concerned that the plans would make it harder for banks to cut costs in a downturn, as well as affecting Britain’s competitiveness compared to other financial centres such as New York and Hong Kong.
But Johnson insisted banks must also convince the British public that they benefit the wider economy by paying generous wages to low-level staff and taking part in philanthropic activities.
“If our banks and our finance houses reward top staff so handsomely then they need to give something back. That starts with the London Living Wage,” the Mayor said. He is backing a campaign for London firms to pay all staff a minimum of £8.55 per hour.
European parliamentarians have been pushing hard for the cap on bonuses, and countries led by France have taken up the demands. If approved, bonuses will be capped at the same level as the worker’s salary, though a two-thirds vote of shareholders could double that level.
The Irish presidency of the EU has made the reforms a priority for the next six months, while Germany has dropped its opposition to the cap.
That leaves Britain alone in publicly opposing the plan. The UK favours pushing banks to pay more in shares, deferred for several years to allow banks to claw back the bonuses if long term performance is poor.
The industry fears the UK will now be defeated, hitting the sector.
“George Osborne doesn’t want to stand up alone and argue for bigger bonuses, so we will lose out by default. The banks have no friends on this one, so the end result will be another loss to London’s competitiveness,” said one industry insider.
“This cap will make other parts of the world more attractive to bankers looking at where they want to work,” added TheCityUK’s Chris Cummings.
The banks themselves are concerned that pay packages designed to encour- age long-term success will now be scrapped in favour of the capped one-year bonuses. “This simply stops share-holders from having any redress against bad performance,” warned a source at a major UK lender.
The Treasury declined to comment.