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Why is George Osborne standing up for bankers' bonuses?

Osborne's legal challenge to EU plans to put a cap on bonus culture is designed to stop bankers wages from rising, the government says. Photo: Reuters

You would have thought that bankers' bonuses have given the government enough hassle that they wouldn't feel inclined to "stand up for them" as Labour alleges they are doing.

Except, contrary to what you would expect, the Treasury's legal challenge to the EU's attempt to cap bonuses is, they claim, designed to actually keep pay down.

How?

Well, first, the City of London is a very important part of our economy, any attempt to limit the amount bankers earn could, theoretically, put the best bankers off coming to work here, whether in London, or in other parts of the European Union.

But secondly, and what might seem perversely, capping bonuses could mean that banks put salaries up instead.

If they're not allowed to pay bankers sky high amounts through one-off bonuses, well, they could just increase pay instead.

And like it or not, there is already evidence that financial companies are starting to increase salaries already. A survey by Robert Half, a financial recruitment firm, already found that four out of ten firms are already planning to put salaries up.