IEA - Banker bonuses cap scrapping strengthens UK competitiveness

Julian Jessop, Economics Fellow at the free market think tank, the Institute of Economic Affairs comments on the government's decision to lift the cap on bonuses for employees of banks, building societies, and investment firms

“Scrapping the bankers bonus cap is common sense. It is a clumsy rule whose costs far outweigh any potential benefits. Its removal will further strengthen the competitiveness of the UK financial sector and increase tax revenues, so it is not just bankers who will benefit.

“The cap has led firms to increase basic pay and made it harder for them to adjust variable pay. This has added to fixed costs and reduced the flexibility to respond to different financial conditions and to reward outstanding individuals appropriately.

“There are also now many more effective ways to prevent excessive risk-taking, including the ‘Senior Managers Regime' (which makes top staff directly accountable to regulators) and deferred bonus schemes (which allow excessive payments to be clawed back later).”

Notes to Editors

The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems. The IEA is a registered educational charity and independent of all political parties.