Labour Market

Scrap uncompetitive EU-imposed cap on bonuses, urges IEA expert

Commenting on reports that Kwasi Kwarteng may scrap the EU-imposed cap on bankers’ bonuses, Professor Len Shackleton, editorial and research fellow at free market think tank the Institute of Economic Affairs, said:

“Capping any price, be it energy, rents or bankers’ bonuses is always unwise. The time inevitably comes when the cap has to be lifted, and then there will be noisy complaints from the usual suspects.  

“If Kwasi Kwarteng does remove the EU-imposed cap on bonuses there will be massive ‘whataboutery’, particularly at a time when coping with the cost of living is on all our minds. 

“But it was always irrational to cap bonuses rather than total pay, even within the European Commission’s logic. Analysts agree that executive pay should be performance-linked, and bonuses are precisely that. The idea that there should be a fixed ratio of bonus to salary has no basis in economic theory. 

“A continuing cap on bonuses will over time add to the difficulties of international recruitment and undermine the competitiveness of the UK’s financial sector, one of our few clear sources of competitive advantage (and, incidentally, huge amounts of tax revenue).

“If the government wants to make progress through the swamp of regulation which holds our economy back, it must be bold. This is a relatively trivial issue compared with some which the government faces in attempting to boost economic growth. Mr Kwarteng should ignore the jibes of those who haven’t the faintest clue how to boost the economy’s performance.

“The pay arrangements for executives in all sectors should be the responsibility of shareholders through properly-constituted remuneration committees. It should not be subject to government fiat.”

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