European Union officials have agreed to a provisional deal that caps bonuses paid to bankers, which could come into force as early as 2014. As the UK’s current economic crisis had its roots in banking failures a bonus cap should be good news to the British government, but it is not. UK PM David Cameron has fought hard against a cap on banking bonuses and there are many reasons why.
Today's announcement means that banking bonuses will be capped at one year’s salary. A bonus may be increased to two years, but only if the bank's shareholders give their permission.
London has the biggest banking sector in the European Union and will take a financial hit
The City of London, the so-called financial capital of Europe, relies on banking revenue. Capping bankers bonus payments will lead to a fall in tax revenues and restrict growth in the financial sector, claims Cameron. Employing around 144,000 directly, and many more in related posts, the London banking sector is big business.
Jobs for the boys and girls
Of course the cynical will say that all Cameron is doing is attempting to protect his “banking buddies.” As a Conservative party leader, David Cameron will be keen on protecting the banking sector, although his reasons are open to debate.
It is another hit from the EU
Britain is firmly entrenched in the EU and this often has a negative impact on the people of the UK. EU member states such as Germany, and that country’s leader Angela Merkel, pull the strings and Brits dance to an ever-changing tune. Each leader looks after their own country’s interests and to call the EU a community is a laughable.
Banks will simply pay bigger salaries
There is a line of argument that paying a bonus guarantees results as they are linked to performance. To get round a cap in bonus payments banks will pay higher starting salaries which are not linked to performance. Will this result in poor performance, in reality?
The best Bankers will leave the UK
With a cap on bonuses in Europe the UK will lose its best bankers, perhaps to Asia or America, where there are no restrictions in place.
So those are the general arguments against a cap on banking bonuses. David Cameron looks genuinely concerned about the effect this change could have on the UK economy but is this just a ploy?
The front bench of the coalition government in the UK parliament, also called “millionaire’s row” includes Messrs Clegg, Cameron and Osborne who are millionaires in their own right. Their parliamentary salaries are just pocket-money. Such men rarely enter politics because they need or job or want to help the people of a country. They enter politics as a business. It offers a means to an end, including a way to make sure your wealth is best served.
Having networked and made life-long allies on the playing fields of long-established public schools such as Eton, top jobs go to a select few.
Whilst there is some truth in the effect a bonus cap could have on the City of London and tax revenues such a measure was long overdue. How any banker can claim that bonus payments guarantee employees perform well escapes me.
Today the Guardian reports that RBS, Royal Bank of Scotland, has reported a "fifth consecutive pre-tax loss of £5.2bn in 2012." Reasons given such as money being paid back following miss-selling of products are no excuse. These show that the banks needed taking in hand.
Many people work hard for a salary without ever receiving bonus. It says something that bankers can only work hard if there is an added incentive.
The EU decision to cap banking bonus payments does highlight European interference in British affairs but many ordinary Britons will be quite happy that is the case, at least this time.
Related reading: A better world without Central Banks