UK to scrap bankers’ bonuses cap

It follows a consultation this year from the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) on whether to abolish a 2014 rule – inherited from the EU – limiting bonuses worth twice the base pay for staff of banks, building societies and investment firms.

The government has claimed the move will increase the post-Brexit competitiveness of the City by making London a more attractive place for banks to base their staff. In a report published today (24 October), the regulators said the bonus cap has been identified as a “factor in limiting mobility”, adding that the move will remove this barrier in the UK.

The FCA and PRA also said the cap had “untended consequences”, with firms ending up increasing bankers’ fixed pay. They added that, when fixed or base pay accounted for the biggest share of remuneration, employers had less room to vary employee pay due to “material poor performance or misconduct”.

The decision was initially announced by former chancellor Kwasi Kwarteng as part of last year’s infamous mini-budget, and was one of the few policies retained by Jeremy Hunt when he took over at the treasury.