The Bank of England has said it never supported the bankers’ bonus cap amid speculation that Kwasi Kwarteng wants to scrap the policy post-Brexit.
A spokesperson for the Bank told Reuters today that there were better ways to ensure banks account for risks than the EU-enforced restriction, which critics have said hurts the City’s global competitiveness.
The cap, which was introduced by Brussels after the 2008 financial crash, sees bankers’ bonuses limited to no more than 100 per cent of their fixed pay or double that with explicit shareholder approval.
Kwarteng wants to scrap the cap as part of efforts to revitalise the City and give London a competitive edge over European rivals, according to the FT .
Last month Prime Minister Liz Truss said it was time to ditch EU-era regulation in an interview with City A.M.
The intervention from the Bank of England appears to show that the central bank is also on board with the change.
A Bank spokesperson said: “The Bank did not support the bonus cap when it was introduced. The Senior Managers Regime and remuneration rules requiring deferral of bonus payments are more effective tools for ensuring bankers take proper account of risks.”
Professor Len Shackleton, editorial and research fellow at free market think tank the Institute of Economic Affairs, said that it “was always irrational to cap bonuses rather than total pay, even within the European Commission’s logic”.
“A continuing cap on bonuses will over time add to the difficulties of international recruitment and undermine the competitiveness of the UK’s financial sector, one of our few clear sources of competitive advantage (and, incidentally, huge amounts of tax revenue),” he said.