Bankers' bonuses: No cap under Labor, says Reeves

The Shadow Chancellor told BBC Labor that he had no intention of reinstating the cap on bonuses for bankers that the Conservative government scrapped last year.

It comes after Rachel Reeves set out Labour's plans to boost economic growth through the financial services sector.

He said the sector was one of Britain's greatest assets and that his party would “unabashedly champion it”.

This marks a significant change from past criticism of the previous leadership's policies and the removal of caps on bonuses.

A maximum bonus of 200% of bankers' regular salaries has been introduced across the European Union in a bid to curb excessive risk-taking blamed on the financial crisis.

The decision to remove the bonus cap was taken by Liz Truss's short-lived government before the financial market turmoil forced the resignation of Prime Minister Kwarteng, who subsequently resigned as prime minister himself.

Mr Reeves, the shadow chancellor and a former Bank of England official, told the BBC there were no plans to reinstate the bonus cap, despite criticism from key figures in the Labor Party, including the umbrella body of British trade unions.

“The cap on bankers' bonuses was introduced in the aftermath of the global financial crisis and was the right thing to do to rebuild public finances,” he said.

“But it's gone now and we're not going to get it back. And as Chancellor of the Exchequer, I want to be a champion of a successful and thriving financial services industry in the UK.”

But as recently as October 2023, she wrote a post on We compared the challenges faced.

Labor leader Sir Keir Starmer also criticized the policy, saying it amounted to “a pay rise for bankers and a pay cut for district nurses” in the wake of industrial action in the health sector.

Left-wing campaign group Momentum said Mr Reeves' recent comments were “completely out of touch” with Labour's values ​​and public opinion.

The newspaper said Sir Keir and Ms Reeves appeared “determined to repeat” the mistakes seen during the financial crisis.

Many see this cap as a way to keep down overall salaries for urban bankers.

But over the past decade, British banks have compensated for the decline in bonuses by increasing bankers' base salaries to help them compete for top talent with other top financial centers such as New York and Singapore.

Critics of caps argue that at least bonuses can be deferred or withdrawn based on performance, whereas base pay cannot.

Skeptics include the Governor of the Bank of England, who previously told the BBC he preferred allowing uncapped bonuses because they would not lead to “permanent pay rises” in the sector.

Labor has been on a charm offensive against business and finance for some time, and the announcement comes ahead of a major conference for business leaders it is hosting in London on Thursday.

Ms Reeves outlined many of Labour's policies for the financial sector.

Many of Labour's ideas to scrap onerous regulations are very similar to recent government efforts to keep up with new emerging technologies and other global financial centres.

However, in an election year, the announcement comes after Labor has moved on from 2019, when Jeremy Corbyn and John McDonnell supported the nationalization of some industries and described City bankers as overpaid “speculators”. It's an intentional change to show that things have changed.

Miles Selick, chief executive of financial services organization TheCityUK, said: “Labour has a clear focus on innovation, modernizing the regulatory environment, boosting investment and unlocking the potential for growth across the economy. “We have launched an advanced plan for targeted financial services.” ”

But some in the industry are uncomfortable with Labour's direction.

Mick McAteer, co-director of the Center for Financial Inclusion and former director of the Financial Conduct Authority, suggested the party had gone “too far”.

“Financials have become so dominant that we seem to have forgotten the mistakes of the previous Labor government that left Britain one of the most exposed global economies when the devastating 2008 crisis arrived.

“Ordinary people and Britain's public services are still paying the price for that failure,” he said.

Mr McAteer added: “The city's fiscal lobby is loudly promoting the interests of this sector. The city doesn't need another Labor champion.”

The Conservative government is attacking Labour's fiscal credibility and its pledge to reduce government borrowing as a share of national income in the next parliament.

Chancellor Rishi Sunak has named Labor's 2021 pledge to invest £28bn a year in green technology as unachievable without tax increases and borrowing.

The pledge has been watered down to “ambition” by shadow business secretary Jonathan Reynolds, and Mr Reeves said Labour's spending plans would need to be tailored to the situation Labor would inherit if it won. .

The Conservatives have signaled that any surplus in the public purse will be used to cut taxes, which Mr Reeves described as a “scorched earth” approach.