The Bank said axing the restriction, which Britain inherited from the EU, would enable financial groups to re-structure pay faster and give them greater flexibility over their costs when dealing with downturns.
The Financial Conduct Authority said scrapping the bonus cap would help the City compete for and attract top talent, as well as protect businesses by making more of bankers’ pay packets variable.
However, TUC general secretary Paul Nowak claimed it showed the Government was keen to help the rich, rather than families struggling due to the inflationary squeeze on their finances.
He said: “This is an obscene decision. City financiers are already enjoying bumper bonuses. At a time when millions up and down the country are struggling to make ends meet – this is an insult to working people. Rishi Sunak has shown once again that he is more interested in feather-nesting the super-wealthy than helping struggling families. Rampant inequality will do nothing to boost growth or competitiveness – it will just hold our economy back.”
Ben Blackett-Ord, founder of regulation consultant Bovill, said the bonus cap was part of a package of measures to rein in the excesses of the banking sector after the global financial crisis of 2007-09. Despite the intention behind it, he said: “It is difficult to see any evidence that it has done anything to improve conduct.”
He added that clawing back bonuses, rather than capping them, would be more effective at ensuring bankers behaved themselves.
Mr Blackett-Ord argued: “The ability to claw them back is an incredibly powerful tool, and one that I’d suspect is under-utilised.”
Adrian Crawford, employment partner at legal firm Kingsley Napley, said that while scrapping the bonus cap would likely lead to higher bonuses for bankers, pay was still subject to being docked or clawed back if their conduct fell below the levels expected of them.
“Even after the bonus cap has gone, banks will still face significant constraints on the way they structure pay,” he said.
“In view of changes in the regulatory environment, this is not so much turning the clock back as moving into a new environment with the banks having more freedom but still being subject to significant constraints.”
