Liz Truss faces backlash over plan to lift cap on bankers’ bonuses
Good morning. Politics has been on hold this week not just because the government and opposition parties have suspended almost all announcements but because to a large extent they are not even commenting on political matters at all, out of respect for the period of mourning for the Queen. But from the Treasury, where officials are working hard on next week’s emergency budget, and cobbling together a mechanism for implementing the energy price guarantee, some news does seem to be seeping out. Earlier this week we learned that Kwasi Kwarteng, the new chancellor, has told officials to focus “entirely on growth”. And today the Financial Times reveals that he wants to lift the cap on bankers’ bonuses.
My colleague Kalyeena Makortoff has coverage of this on the business live blog.
The idea has already triggered a backlash. Andrew Sentance, who was a member of the Bank of England’s monetary policy committee during the financial crash, told the Today programme this morning. He said:
I think it sends a rather confused signal when people are being squeezed in terms of the cost of living and the government’s trying to encourage pay restraint in the public sector. So to appear to allow bankers to have bigger bonuses at the same time doesn’t look very well timed.
There may be some longer term arguments for pursuing this policy, but I think the timing would be very bad if they did it now.
And in a Twitter thread starting here, Mick McAteer, a former board member at the Financial Conduct Authority, says this is a “bad idea” that will encourage aggressive risk taking.
Interesting discussion on @BBCr4today about gov scrapping bankers bonus cap.
There’s a number of reasons why this is a bad idea.
Will encourage the type of aggressive, risk taking socially useless market behaviours we really dont need. 1/— Mick McAteer (@MickMcAteer) September 15, 2022
The cap on bankers’ bonuses was introduced as an EU rule after the bonus culture in banking was seen as contributing to the risk taking that triggered the financial crash. George Osborne and the Tory chancellors who followed him never liked it on principle, but after Brexit they shied away from pledging to get rid of it because they realised that, regardless of the economic arguments, the politics of such a move would be terrible.
But Liz Truss is a more ideological prime minister than any of her immediate predecessors. Kevin Schofield from HuffPost UK thinks populism may now be out of the window.
I try to monitor the comments below the line (BTL) but it is impossible to read them all. If you have a direct question, do include “Andrew” in it somewhere and I’m more likely to find it. I do try to answer questions, and if they are of general interest, I will post the question and reply above the line (ATL), although I can’t promise to do this for everyone.
If you want to attract my attention quickly, it is probably better to use Twitter. I’m on @AndrewSparrow.
Alternatively, you can email me at [email protected]
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Sir Philip Augar, a former banker and the author of several books on the City, told the Today programme this morning that, from a messaging point of view, getting rid of the cap on bankers’ bonuses was “absolutely terrible”. He explained:
Few of us would disagree with the idea that bankers get paid too much. They got paid too much in my day when I worked in the industry, and that’s even more true now.
But he said that Kwasi Kwarteng, the chancellor, was right to think that the cap on bonuses was flawed. He went on:
Counter intuitively, the bonus cap hasn’t helped at all. In fact, it’s made things worse because banks have simply got round the cap by increasing salaries, and that means they’re locked into a very high total compensation package. Bankers have done even better.
So, although instinctively it feels wrong, I can understand the chancellor’s point of view if this is what they do.
He also said he agreed that lifting the cap might make the City more competitive.
Particularly on the investment banking side – that’s the trading and markets business – it’s a globally competitive industry. Pay rates are set, not in London or in Europe, but in New York, and I can understand the idea that you might want to make London more competitive by freeing up the cap.
Philip Aldrick, an economics reporter at Bloomberg, makes a similar argument on Twitter, pointing out that Mark Carney, the former governor of the Bank of England, was opposed to the cap.
On scrapping the banker bonus cap. Carney and the BOE thought it was bad for financial stability as it fixed salary costs after years spent designing maluses and clawbacks to improve incentives. Cameron’s 2016 negotiation for new EU member terms would have seen the cap scrapped.
— Philip Aldrick (@PhilAldrick) September 15, 2022
A portion of bonuses were supposed to be paid over time in stock and can be cancelled later. Banks created “allowances” to get round the cap. But the problem is salaries have now shot up. The old variable structure – lower fixed pay, higher bonus potential -needs to return
— Philip Aldrick (@PhilAldrick) September 15, 2022
Here’s Carney in 2014 on how best to handle banker compensation for financial stability outcomes. The BOE spent ages calibrating a plan to make sure incentives were improved. Then EU imposed the crude bonus cap, and base pay soared, making the careful plans largely redundant pic.twitter.com/r8UfBE9BZM
— Philip Aldrick (@PhilAldrick) September 15, 2022
Patrick Hennessy, a former Labour spin doctor, has posted this on Twitter in response to the FT story about Thérèse Coffey.
Julian Jessop, economics fellow at the Institute of Economic Affairs, a free market thinktank which is highly regarded by Liz Truss, says lifting the cap on bankers’ bonuses would send a “positive signal” to the City.
“Kwarteng seeks to scrap bankers’ bonus cap to boost City of London”…👍
I don’t think the cap has a huge impact, but getting rid of it would send another positive signal.
ps. the “pay rises for bankers, pay cuts for nurses” narrative is lazy… (1/2)https://t.co/JeudEJPmOr
— Julian Jessop (@julianHjessop) September 15, 2022
… allowing commercial #banks to pay some of their staff more will have no impact on public sector pay, except perhaps a positive one (more tax revenues).
There are also much better ways to discourage excessive risk-taking in the #City, incl. long-term incentive schemes.
(2/2)
— Julian Jessop (@julianHjessop) September 15, 2022
Thérèse Coffey, the new health secretary and deputy prime minister, has angered some NHS staff “by telling them to ‘be positive’ and avoid using policy wonk ‘jargon’ as they grapple with job cuts and the deepening cost of living crisis”, the Financial Times reports. Coffey issued her instructions in an email setting out her communication preferences. It even mentioned her dislike of the Oxford comma.
In their story Donato Paolo Mancini, Sarah Neville and Jasmine Cameron-Chileshe report:
Insiders said that the instructions — entitled “New secretary of state ways of working preferences” — had been published on the Department of Health and Social Care’s intranet. An email, seen by the Financial Times, shows Coffey’s guidance was also forwarded to UK Health Security Agency staff.
The rubric has angered health workers, many of whom were on the front lines during the Covid pandemic and who now face real-terms pay cuts and added pressures as infection rates are expected to rise over the winter.
Coffey’s office asked employees to “be precise” and “be positive — if we have done something good, let us say so and avoid double negatives”.
The email was “super patronising . . . It does make you consider if you’re in the right place when a new minister comes in with this,” said one person with knowledge of the mood at UKHSA ….
Another senior public health official said they understood that staff would see the reference to Oxford commas, in particular, as “extremely patronising”.
Lifting cap on bankers’ bonuses would be ‘pro-rich ideological measure’ sending ‘depressing message’, says thinktank
Luke Hildyard, executive director of the High Pay Centre thinktank, says removing the cap on bankers’ bonuses would be an “ideological measure” that favours the rich. He says:
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.
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.
And here is some reaction to the proposal to lift the cap on bankers’ bonuses from political journalist and commentators.
From Lionel Barber, former editor of the Financial Times (aka the Bankers’ Gazette)
If you no longer have friction-free access to the EU’s single market in financial services, you will be tempted to lift the cap on bankers’ bonuses to compensate the City of London. Doesn’t feel like a game changer and at this moment, it’s politically toxic. Welcome to Brexit!
— Lionel Barber (@lionelbarber) September 15, 2022
From my colleague Pippa Crerar
Labour will be rubbing their hands with glee.
— Pippa Crerar (@PippaCrerar) September 15, 2022
From Chris Giles, economics editor at the FT
There is a legitimate argument whether a cap on bankers’ bonuses is good or bad for growth (short term and long term)….
There should be no argument that the effect is
…small*
* so long as it does not come with many more incentives to take big risks with others’ money
— Chris Giles (@ChrisGiles_) September 15, 2022
From Sky’s Beth Rigby
Fascinating @FT splash. Kwateng could scrap bankers’ bonus caps. Logic = make London more competitive, sell as Brexit benefit
But certainly not a vote winner. Bankers bonuses + no windfall tax a bold & genuine ideological break between parties I’ve not see for a decade 1/
— Beth Rigby (@BethRigby) September 15, 2022
(Rigby may have forgotten about Jeremy Corbyn.)
What’s the logic? Scrap cap intro’d via EU 2014, as part of wider deregulatory reforms. Aim = make City more attractive place for biz. That grows economy, helps Exchequer. BUT, the political risk at a time when people struggling & pub services deteriorating, HUGE political risk
— Beth Rigby (@BethRigby) September 15, 2022
As senior exec at EU firm tells @FT: “It’ll make it even harder for us to compete in London & with US banks overall” But quoted saying this too: “It is not a vote winner, I am surprised it is being talked abt” >UK long opposed cap. But Johnson didn’t move on for fear of backlash
— Beth Rigby (@BethRigby) September 15, 2022
Protecting energy companies against windfall taxes & allowing big banker bonuses. What’s the gambit? Seems to be take short term political pain now in order to boost ec growth (this Truss & Kwateng’s mantra) by time of next election. But brace for the backlash, this a huge gamble
— Beth Rigby (@BethRigby) September 15, 2022
From my colleague Peter Walker
With policies like this, and the complete ruling out of an expanded windfall tax, it’s probably fair to say the Truss government isn’t ruled by focus groups and polling. Will be interesting to see how long that lasts. https://t.co/GZUyjTUyfi
— Peter Walker (@peterwalker99) September 15, 2022
From Jon Sopel from the News Agents podcast
Remove cap on bankers’ bonuses, no new windfall tax on energy companies and tax cuts to come that will favour the most well off. Well, you can’t fault the @trussliz government for boldness. But fairness? https://t.co/jxwOo1bQt2
— Jon Sopel (@jonsopel) September 14, 2022
TUC says Kwarteng should prioritise higher wages for everyone, not boosting bonuses for bankers
The TUC has said the government should be focusing on pay rises for everyone, not increasing bankers’ bonuses. In a statement, Frances O’Grady, its outgoing general secretary, said:
Bonuses in the City are already at a record high.
While City executives rake it in, millions are struggling to keep their heads above water.
Working people are being walloped by soaring prices after the longest and harshest wage squeeze in modern history.
The chancellor’s number one priority should be getting wages rising for everyone – not boosting bumper bonuses for those at the top.
To get pay rising across the economy, the chancellor must deliver a plan for a £15 minimum wage, fund decent pay rises for all public sector workers and introduce fair pay agreements for whole industries.
Liz Truss faces backlash over plan to lift cap on bankers’ bonuses
Good morning. Politics has been on hold this week not just because the government and opposition parties have suspended almost all announcements but because to a large extent they are not even commenting on political matters at all, out of respect for the period of mourning for the Queen. But from the Treasury, where officials are working hard on next week’s emergency budget, and cobbling together a mechanism for implementing the energy price guarantee, some news does seem to be seeping out. Earlier this week we learned that Kwasi Kwarteng, the new chancellor, has told officials to focus “entirely on growth”. And today the Financial Times reveals that he wants to lift the cap on bankers’ bonuses.
My colleague Kalyeena Makortoff has coverage of this on the business live blog.
The idea has already triggered a backlash. Andrew Sentance, who was a member of the Bank of England’s monetary policy committee during the financial crash, told the Today programme this morning. He said:
I think it sends a rather confused signal when people are being squeezed in terms of the cost of living and the government’s trying to encourage pay restraint in the public sector. So to appear to allow bankers to have bigger bonuses at the same time doesn’t look very well timed.
There may be some longer term arguments for pursuing this policy, but I think the timing would be very bad if they did it now.
And in a Twitter thread starting here, Mick McAteer, a former board member at the Financial Conduct Authority, says this is a “bad idea” that will encourage aggressive risk taking.
Interesting discussion on @BBCr4today about gov scrapping bankers bonus cap.
There’s a number of reasons why this is a bad idea.
Will encourage the type of aggressive, risk taking socially useless market behaviours we really dont need. 1/— Mick McAteer (@MickMcAteer) September 15, 2022
The cap on bankers’ bonuses was introduced as an EU rule after the bonus culture in banking was seen as contributing to the risk taking that triggered the financial crash. George Osborne and the Tory chancellors who followed him never liked it on principle, but after Brexit they shied away from pledging to get rid of it because they realised that, regardless of the economic arguments, the politics of such a move would be terrible.
But Liz Truss is a more ideological prime minister than any of her immediate predecessors. Kevin Schofield from HuffPost UK thinks populism may now be out of the window.
I try to monitor the comments below the line (BTL) but it is impossible to read them all. If you have a direct question, do include “Andrew” in it somewhere and I’m more likely to find it. I do try to answer questions, and if they are of general interest, I will post the question and reply above the line (ATL), although I can’t promise to do this for everyone.
If you want to attract my attention quickly, it is probably better to use Twitter. I’m on @AndrewSparrow.
Alternatively, you can email me at [email protected]