Politicially Speaking with Jon Trickett: Why scrap the bankers' bonus cap?

Jon Trickett MP writes: Liz Truss and Kwasi Kwarteng’s disastrous mini-budget announced a series of mistaken policy shifts that sparked a response from financial markets that ultimately brought them down.

Following the change of prime minister almost the whole of the mini-budget was dropped.

Except for one item.

The proposed lifting of the cap on bankers’ bonuses.

Prior to the bankers’ crash of 2008, bankers’ bonuses had been allowed to let rip.

The crash almost brought down the whole of our economic structure.

Banks were bailed out at an extremely large cost to the taxpayer.

Subsequent reviews of the crash concluded that the remuneration packages then in place in the finance sector had contributed to a reckless culture of greed and encouraged behaviour that exposed the banks to unacceptable levels of risk.

Adair Turner, then the Chair of the Financial Services Authority, said that: “inappropriate incentive structures played a role in encouraging behaviour which contributed to the financial crisis”

In the immediate aftermath of the crash, as we know, no banker was charged with any offences in spite of their reckless behaviour.

Though many people felt that some of them should have served time at her majesty’s pleasure.

But eventually the EU instituted a control over bankers’ bonuses which meant they are not allowed to receive a bonus more than 100 per cent of their salary, or 200 per cent if the shareholders vote in agreement.

It is this cap which the Conservative government wants to remove.

Remuneration packages in the finance sector are once again quite extraordinar

For example, the CEO of Britain’s largest bank, HSBC, was paid bonuses of $2.2 million in 2021– equivalent to 129 per cent of their basic salaries.

The truth is that the bankers’ bonuses have doubled since the 2008 financial crash.

That’s a 101 per cent increase in cash terms between 2008 and 2022, according to the Trades Union Congress.

In the most recent available data from the European Banking Authority, there are 3,519 bankers working in the UK who made more than €1m (£880,000) a year.

Seven out of ten bankers who made more than €1m in Europe in 2019 were located in the United Kingdom.

Meanwhile 27 UK bankers were paid more than €10m, two UK-based asset managers received between €38m and €39m each and one merchant banker was paid €64.8m in a single year – almost all of which was a bonus.

These are outrageous figures and make you wonder why it’s necessary to lift the bonus cap at all?