Cap on bankers' bonuses could be removed under new plans considered by chancellor

Chancellor Kwasi Kwarteng is understood to be considering lifting the cap. Credit: PA

A cap on bankers' bonuses could be scrapped under an overhaul of City rules being considered by the new chancellor, Kwasi Kwarteng.

The cap, introduced by European Union legislation in the wake of the 2008 financial crisis, limits annual pay-outs to twice a banker’s salary.

Sources close to Mr Kwarteng suggested such a move as part of a wider package would make London a more attractive place for global banks following Brexit.

Allowing bankers’ bonuses to soar as millions feel the strain of the cost-of-living crisis would prove controversial among many.

It is understood that no final decisions had been made.

However, Liz Truss’s chancellor has promised a growth-focused shake-up of the economy and told City bosses last week: “We need to be decisive and do things differently.”

Prime Minister Boris Johnson was forced to say he was not planning to lift the cap after he faced a political backlash for reportedly considering the move in June.

No official decision has been made over the move yet, sources say Credit: Victoria Jones/PA

Labour leader Sir Keir Starmer accused him of plotting “pay rises for City bankers, pay cuts for district nurses”.

Lifting the cap would also come at a time when the government is refusing Labour’s demands for the multibillion-pound strategy to help families and businesses through the energy crisis to be paid for by a windfall tax on the soaring profits of gas and oil giants.

City bosses have been critical of the cap, but its supporters say that unfettered bonuses aided the excessive risk-taking that led to the financial crisis.

Next week, Mr Kwarteng is expected to announce a mini-budget to help the country as it faces soaring bills stemming from Russian President Vladimir Putin’s invasion of Ukraine.

But it was unclear whether an announcement on bankers’ pay would come in that “fiscal statement” or as part of a wider package later on.

Luke Hildyard, the executive director of the High Pay Centre think tank, said removing the cap would be an “ideological measure” that favours the rich.

“The bonus cap has probably helped to contain bankers’ pay awards but they’ve still reached record highs this year while the rest of the country has undergone an epic cost-of-living crisis and profound economic hardship,” he added.

“We know that bonuses in the financial services sector have helped the richest 1% of the population to capture an increasing share of total UK incomes.

“Removing the cap would be a pro-rich ideological measure that sends a depressing message about who policymakers listen to and think about when making economic policy.”