The British finance minister’s proposal to remove the lid on investment banker bonuses is sparking controversy.
- The finance minister of Britain, Kwasi Kwarteng, is considering scrapping a cap on banking bonuses.
- The move is being considered to make Britain more competitive in the financial markets.
- “Kwarteng believes the change would make London more attractive for global banks,” says Yahoo Finance.
Why it’s important
The decision could have major consequences for Britain’s banking industry, both making it into one of the most desirable markets in the global economy and also creating very serious risks.
“Prime Minister Liz Truss has promised to ‘really unshackle’ the City of London after Britain left the European Union and Kwarteng is looking at the possibility of dropping the banker bonus cap, originally adopted as an EU rule,” says Reuters.
The cap was signed into law by the European Union in 2014 as a response to the banking industry and the disastrous 2008 financial crisis.
“The 2008 financial crisis had been caused, in part, by a generation of bankers whose big bonuses had given them an incentive to take the kinds of risks that cause a meltdown in the global banking sector,” says Yahoo Finance.
There has been significant speculation as to whether the rule would be struck down in the United Kingdom following Brexit but it has yet to come to pass, due at least in part to fear of a public backlash.
“Ending the cap—which was introduced in 2014 by the European Union—is likely to draw fierce criticism from the government’s political opponents. The cap limits the amount bankers can receive in bonuses to twice their annual salary. Its supporters say it is necessary to prevent bankers taking unnecessary risks like those which led to the 2008 financial crash in order to pocket huge bonuses,” reports the Huffington Post.