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The bonfire of the inanities. UK Chancellor of the Exchequer Kwasi Kwarteng isn’t pulling any punches with his first moves in office. First, he unceremoniously fired the most senior civil servant in the Treasury. Now he is contemplating taking an axe to European Union regulations on financial services. But he is starting on the latter in a very odd way — wading into the politically sensitive area of banker pay and possibly scrapping the cap on bonuses (currently at double one’s salary) the EU introduced in 2014 in a belated response to the global financial crisis.
This looks like ideological vice-signaling for a microscopic number of beneficiaries. Focusing on salaries of the very wealthiest would certainly send a message that trickle-down economics is leading the new government’s pro-growth agenda.
The principle is sound: Governments shouldn’t be in the pay-capping business. No other sector has these restrictions, and the Bank of England has always made clear it was against the bonus cap. But the timing is absolutely terrible. Deciding to clean up an old piece of red tape now is tone-deaf amid a cost-of-living crisis and risks further aggravating the EU when tensions are already high.
Financial services contribute about an eighth of UK gross domestic product, yet the vital industry was singularly ignored during the Brexit negotiations. A new approach to the “jewel in the crown†as Prime Minister Liz Truss puts it, is long overdue, but coming in hot on bonus limits may prove counterproductive for the real prize the City of London hankers for — regulatory equivalence, or a level playing field, with the EU.
Dangling carrots on banker pay will butter few parsnips in Brussels, which is already sensitive about the prospect of the UK tearing up the rule book and creating a regulation-light “Singapore-on-Thames.†The vast majority of European banks keep to the one-times-salary bonus cap, as shareholders have to specifically approve lifting the limit to two times salary, which very few boards have decided to brave.