Scrapping the cap on bankers’ bonuses would be unfair to millions facing poverty and repeat the blunders leading to the 2008 financial crash, the chancellor has been told.
Kwasi Kwarteng is facing fierce criticism after his plan to lift the 2014 restrictions – to help the struggling UK economy “go for growth”, he will argue – was revealed.
The Trades Unions Congress (TUC) said the move would come as real-term pay cuts are imposed on public sector workers and “millions are struggling to keep their heads above water”.
Mr Kwarteng was also warned it would make a mockery of promises to “level up” the country” because it would give “a further rocket boost” to London, the financial services centre.
And Mick McAteer, a former Financial Conduct Authority board member, attacked a “bad idea” that would encourage the aggressive risk taking seen before the devastating 2008 crash.
It would create incentives for “misselling of toxic socially useless financial products”, he warned, adding: “I’m not sure it’s appreciated just how dangerous fierce competition can be.”
Frances O’Grady, the TUC general secretary, said: “Nurses given real-terms pay cuts. City executives given unlimited bonuses.”
Caroline Lucas, the Green MP, tweeted sarcastically: “Excellent – because the biggest problem with our economy right now is definitely that bankers aren’t paid enough.”
There was no immediate response from either Labour or the Liberal Democrats, which have been observing the national period of mourning following the Queen’s death.
The cap, introduced by the EU in the teeth of opposition from the UK, requires bonuses to be limited to no more than 100 per cent of fixed pay, or double that with shareholder approval.
Its removal would come as millions of workers, especially in the public sector, face effective pay cuts as wages fail to keep pace with inflation of around 10 per cent.
The Treasury has said no decisions have been taken and Boris Johnson backed away from taking the step because he feared the political backlash during the cost of living emergency.
But Mr Kwarteng is anxious to boost London’s competitiveness against New York, Frankfurt, Hong Kong and Paris, according to people briefed on the discussions.
The cap has annoyed US investment banks that employ tens of thousands of staff in London, because Wall Street typically offers lower fixed salaries with big performance-related bonuses.
But Vince Cable, the former Liberal Democrat business secretary, called it a “disastrous step revisiting mistakes before financial crisis”, saying of the Tories: “They never learn from history.”
Luke Hildyard, executive director of the High Pay Centre thinktank, said: “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.”
Fran Boait, of the group Positive Money, which campaigns for a fairer economy, said: “Gifting bankers uncapped bonuses at a time when millions of households are choosing between eating and heating is beyond tone deaf – it’s shameful.”
Andrew Sentance, a former member of the Bank of England’s monetary policy committee, questioned the move when the government wants “pay restraint in the public sector”.
“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,” he warned.
Mr McAteer added: “What does scrapping bonus cap mean for levelling up? Why give London a further rocket boost?”
But Philip Augar, a former banker – while agreeing that the image of ageing the cap was “absolutely terrible” – agreed it was flawed and that removing it could boost the City.
“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,” he told BBC Radio 4.
“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.”
The chancellor will deliver a mini-budget next week, having vowed to “do things differently under fresh leadership” and return annual economic growth to 2.5 per cent.
But it is possible that Mr Kwarteng will leave changes to the City of London to a later date – with next week’s event already set to include £30bn of tax cuts for the wealthy.