Kwarteng’s plan to lift the cap on banks’ bonuses angers the unions |  Executive salary and bonuses

Kwarteng’s plan to lift the cap on banks’ bonuses angers the unions | Executive salary and bonuses

Unions have reacted with fury to the prospect of the government scrapping a cap on bankers’ bonuses, as ministers prepared for a return to near-normal politics next week, topped by a mini-budget on Friday.

Chancellor Kwasi Kwarteng, who will set out plans for tax cuts and give more details of the government’s plans to curb rising energy bills, is also considering whether to discard the legacy of an EU-wide cap on bonuses of twice an employee’s salary, imposed after the financial crash in 2008.

Although the cap was intended to curb excessive risk-taking practices that helped fuel the crash, ministers are known to be concerned that the City is at risk of losing out to other financial centres.

According to the Financial Times, Kwarteng wants to abolish the rules as part of what he calls “big bang 2.0”, a post-Brexit deregulation effort to make the city more competitive.

Sources told the paper that Kwarteng wants to boost the city’s competitiveness against New York, Frankfurt, Hong Kong and Paris, with one financier saying an end to the ceiling was a “clear Brexit dividend. Something you can present as a win.”

However, it would be a politically dangerous move at a time when the bulk of UK households face real pay cuts amid 9.9% inflation, as well as notably higher energy bills this winter, despite the government planning to cap increases.

Frances O’Grady, the general secretary of the TUC, said people were “being overwhelmed by high prices after the longest and hardest wage squeeze in modern history”. She added: “The chancellor’s No 1 priority should be to get wages up for everyone – not to increase bonuses for those at the top.”

Sharon Graham, the general secretary of the Unite union, said workers would be “horrified and angry”. She said: “When millions are struggling to feed their families and keep the lights on, the government’s priority seems to be increasing the phone number salaries of their friends in the city.”

Andrew Sentance, a member of the Bank of England’s monetary policy committee during and after the financial crisis, said it was a “very bad” time to consider increasing bankers’ bonuses.

Speaking on BBC Radio 4’s Today program on Thursday, Sentance said it risked sending “a rather confused signal” amid inflationary pressures. “Seemingly allowing bankers to have bigger bonuses at the same time does not look very well timed. There may be some long-term arguments for pursuing this policy, but I think the timing would be very bad if they did it now, he said.

The discussed plans come as Kwarteng and Liz Truss prepare to lay out their economic plan fully based on lower taxes, reduced regulation and a focus on higher overall economic growth that trickles down to all income groups, as opposed to redistributive policies.

This has been delayed by the Queen’s mourning period, culminating in Monday’s state funeral.

The Commons, which has not been in session this week, is scheduled to resume on Wednesday with more MPs pledging allegiance to King Charles, which is not required but which many want to do.

Thursday could see details of Truss’s energy price freeze, estimated to cost around £150bn, notably the still only outlined plan to help businesses, as well as news on health. While a draft parliamentary timetable only says the Commons can sit on Friday, this is expected to be the day of Kwarteng’s “financial event”, which sets out an initial package of economic policy.

The Commons then goes into recess for the traditional party conference break, due to resume on 17 October. However, MPs will next week be asked to approve an earlier return, on 11 October.

Truss will be in New York after the Queen’s funeral for the UN General Assembly, returning in time for the mini-budget.

While the new prime minister has seen her political agenda sidelined by the Queen’s death, the influx of world leaders ahead of Monday’s funeral will give her the chance to hold talks with some she might not get a chance to see in New York.

Joe Biden, the US president, is among a number of leaders Truss is expected to meet over the weekend in Downing Street and in Chevening, an official country house being used while Checkers undergoes maintenance work.

While No 10 insisted that such meetings would include talk of the Queen, Truss will also discuss wider issues. A full list of bilateral talks before the funeral is due to be released on Friday.

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