UK plans to cut bankers bonus cap under spotlight amid cost of living crisis

The UK is considering removing the limit on banker’s bonusa controversial move that underscores the new government’s determination to deliver major post-Brexit reforms to the City of London.

New Exchequer Prime Minister Kwasi Kwarteng believes the change will make London more attractive, according to two people familiar with the matter. The people said discussions were still going on on the details, although an announcement could be made as soon as next week, one of them added.

The cap introduced by the European Union after the 2008 financial crisis limits bankers’ bonuses to twice their salary. It is thought the UK could drop post-Brexit rules to lure bankers to the City but fears of public backlash have previously limited political appetite.

The Financial Times previously reported.

US investment banks such as Goldman Sachs Group Inc. and JPMorgan Chase & Co can welcome any change as it will allow them align their London payroll operations with the US, where salary variation usually accounts for a larger portion of compensation. UK banks with major investment banking activities include Barclays Plc could also benefit from such a move.

“Retaining key staff for European investment banks has been a problem compared to the major US powers in recent years,” said Jonathan Tyce, a senior analyst at Bloomberg Intelligence.

However, former Bank of England policymaker Andrew Sentance said raising the limit on bankers’ bonuses would be in line with efforts to contain inflation, which has hit its highest level in years. 40 years is 10.1% in July.

“It sends a rather disconcerting signal that people are being squeezed by the cost of living and the government is encouraging wage restrictions,” Sentance said on Thursday on BBC Radio 4’s “Today” programme. “Times will be bad.”

Last year, Bank of England Governor Andrew Bailey said changing the bonus limit was not a “high priority”. However, Bailey is no fan of the rules, saying in 2014 that the limit is a “bad policy” and that a better way for police to take risks is to take back the bounty from those rule breakers

Treasury, declined to comment on FTdid not immediately respond to a request for comment.

Kwarteng said earlier this month at a meeting with industry leaders that the new government under Liz Truss will pursue sweeping financial reforms to usher in growth and competitiveness.

“The Prime Minister and I are committed to taking decisive action to help the British people now, while pursuing an agenda for growth without hesitation,” he said in a statement after the meeting.

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