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The logic for a Chancellor wanting to “go for the growth” is straightforward: removing the cap – originally imposed by the EU, limiting bonuses to twice a banker’s salary – would “boost the City and bring in more revenue long term”.
But the politics, in the midst of a cost-of-living crisis, are another matter. The thinking across a broad spread of the party is that “the optics” are so “toxic” that the measure would be “a total gift to Labour”.
Ignore the noise, Kwasi…
Whatever the fallout, Kwarteng should stick to his guns, said Kate Andrews in The Daily Telegraph. “Attempts to compare a banker’s salary to a nurse’s… distract from the real debate” –which is that the cap “never made sense”. It merely increased the fixed element of pay, and limited the amount of flexibility that banks could have in rewarding performance.As the Bank of England has argued, “there are far better ways of controlling risk in the industry”, such as deferring bonuses.
There’s also a basic principle at stake. The decision of how much to dish out in pay “is explicitly a private one between an employer and an employee”.
Big Bung 2.0
The cap will make London slightly more attractive for the big American banks, said Helen Thomas in the FT. But “the Government will need to do better than Big Bung 2.0” if it wants a real “post-Brexit dividend”. It won’t be “enough to win over the City, let alone its critics”.
It certainly seems “a strange fight to pick” when inflation is “tearing chunks” out of most people’s realterms pay packets, said Nils Pratley in The Guardian. On pure logic, Kwarteng has a point. True to the “waterbed principle” – push down one area, and another goes up – the predictable result of the cap was to boost “fixed pay”.
But the real concern is that the row over the “mostly irrelevant” bonus cap hogs 90% of the attention, while other parts of Kwarteng’s deregulation package for the City will be ignored. “Any dangerous stuff will lie in the boring but very important 10%.”