Bank of England backs lifting bankers’ bonus cap despite governor calling for ‘wage restraint’ for workers
A union leader has accused Andrew Bailey of ‘gross hypocrisy’ over his failure to condemn the lifting of the cap.
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The Chancellor today confirmed reports that the cap will be lifted, shortly after the Bank of England announced a significant 0.5 percentage point interest rate hike in a bid to curb inflation.
Gary Smith, general secretary of the GMB trade union has written to Bailey asking whether he will condemn the bankers’ bonus policy “as a risk to inflation”.
A Bank of England spokesperson told NationalWorld declined to say whether it considers lifting the cap to be likely to contribute to rising inflation, saying only that it “did not support the bonus cap when it was introduced”.
Last month, a number of leading economists wrote an open letter calling on the Bank of England to cut interest rates in order to prevent a recession “on a scale not seen since the 1930s”.
Bankers’ bonuses cap
Kwasi Kwarteng announced a raft of measures aimed at stimulating growth in the economy during his first financial statement as Chancellor, including lifting the cap imposed on banker’s bonuses and getting rid of the top rate of income tax.
The cap is an EU-derived policy which limits banks to paying bonuses of no more than twice a banker’s base rate of pay.
The cap is one of several measures introduced in the years since the 2008 financial crash aimed at disincentivising the kind of risk-taking, which was a significant factor in bringing about the crash.
Asked by the BBC whether she was happy to see bankers getting bigger bonuses and for the rich to get richer, Truss said: “What I want to see is a growing economy.”
Proponents of lifting the ban believe it would help attract more bankers to work in the City of London over competing financial centres like New York and Hong Kong, where no such cap is in place.
Labour’s shadow chief secretary to the Treasury, Pat McFadden, described the policy as a “bizarre move” which will “do nothing to support growth”.
McFadden said the idea “comes straight from the tired Tory playbook on trickle-down economics which haven’t worked for them over the last decade”.
Workers need to show wage ‘restraint’
In response to the proposed policy, many have pointed out a perceived unfairness in uncapping the earnings of already-wealthy financiers while there have been calls from senior politicians and others for workers in general to show ‘restraint’ in asking for real-terms pay increases.
In February, the Bank of England governor Andrew said that restricting wage growth would be key to bringing inflation down, although a number of economists disputed the suggestion that rising wages were a significant contributory factor.
Bailey told the BBC: “I’m not saying nobody gets a pay rise, don’t get me wrong. But what I am saying is, we do need to see restraint in pay bargaining, otherwise it will get out of control.”
However, the Bank of England has not issued any similar warnings about lifting the cap on banker’s bonuses, prompting accusations of hypocrisy.
Gary Smith, general secretary of the GMB trade union, said if Bailey does not “denounce uncontrolled banker bonuses” as a potential driver of inflation, “it is gross hypocrisy on his part.
He said: “Our members know inflation is being driven by energy prices, profiteering and supply chain disruptions, not pay.
“In planning to scrap the cap on bankers’ bonuses the Prime Minister is sticking two-fingers up to workers who are being told by the likes of Mr Bailey to tighten their belts.”
Asked by NationalWorld whether the Bank of England considers the lifting of the cap likely to contribute to rising inflation, a spokesperson said only that there are “more effective tools” at reducing the incentives for bankers to take excessive risks.
A Bank of England spokesperson said: “The Bank did not support the bonus cap when it was introduced. The Senior Managers Regime and remuneration rules requiring deferral of bonus payments are more effective tools for ensuring bankers take proper account of risks.”
Smith has written to Bailey, asking him to clarify his position and also reiterating an offer made in response to the governor’s comments back in February to visit “low-paid workers in the care sector”.
He wrote: “After working a shift, I would be interested to know if you still think those workers should show ‘restraint’ against the escalating cost of living crisis.
“It would also be a good opportunity for you to explain directly, if this is your view, why the Bank of England thinks there should be one rule for bankers and another for care workers.”
The full text of the letter is below:
The Prime Minister has stated she supports plans to scrap the cap on bankers’ bonuses.
To my mind, this will rightly be seen as a gratuitous insult to workers who are being told by you and others to tighten their belts.
I am interested to know, does the Bank of England stand by your comments earlier in the year?
‘We do need to see restraint in pay bargaining otherwise it will get out of control.’
Will you denounce these plans for uncontrolled banker bonuses as a risk to inflation?
Our members know that inflation is being driven by energy prices, profiteering and supply chain disruptions, not pay.
Earlier this year I wrote to invite you to spend a day shadowing the low-paid workers in the care sector. I write again to say that the offer still stands.
The majority of those workers earn pennies more than the National Minimum Wage.
After working a shift, I would be interested to know if you still think those workers should show ‘restraint’ against the escalating cost of living crisis.
It would also be a good opportunity for you to explain directly, if this is your view, why the Bank of England thinks there should be one rule for bankers and another for care workers.
I look forward to hearing from you, and to making arrangements to cover a care shift at a time of your convenience.