Bankers' bonus cap axing: lighting the touch paper for another crash?

The UK is poised to scrap a cap on bankers' bonuses introduced by the EU in the wake of the 2008 financial crisis.

The Financial Conduct Authority confirmed this week that the limit would be lifted from 31 October, almost a year after then chancellor Kwasi Kwarteng announced the decision.

Supporters say ditching the bonus cap will attract more business and talent to the City of London, but critics claim the move is paving the way for another financial crash.

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'City must compete with overseas rivals'

"There is only one group less popular than politicians: bankers," said Ben Ramanauskas in the London Evening Standard. Scrapping the bonuses cap is a "difficult sell" to the public, but Rishi Sunak's "bold" decision to go ahead with the move is "the right one".

Our finance sector is "one of the country's most important services industries", creating high-paid jobs, attracting investment and raising "a significant amount of revenue" for the Treasury, wrote Ramanauskas, a research economist at Oxford University and former government adviser. So politicians should "support the City rather than penalise it in order to score political points".

London "needs to be competitive with the rest of the world", agreed financial pundit David Buik,"hence the need for incentives". And while concerns have been raised about "reckless behaviour" in the financial sector, he wrote for LBC, tough regulatory controls introduced after the 2008 crash make that "much less likely".

'A puppet for his predecessor'

Scrapping the cap on bonuses may attract more talent to the City, said Jonty Bloom in The New European, but it is also likely to draw "every spiv, chancer and con artist". 

"Every reckless banker with a cunning scheme which will get him or her to the top of the greasy pole, will want to be based in London," he continued. 

And although it may take "decades" for "pressures to build up, the regulators to relax, the bankers to lobby for an ever-lighter touch", the UK has already "lit the touch paper" for another major financial disaster.

Lifting the bonus cap may have a "painful" political cost for Sunak too, said Stephen Bush in the Financial Times. That the measure was announced during Liz Truss's brief premiership "allows the Labour party to tell a story that has the potential to do real damage to the Conservatives: that Sunak is simply too weak, and his party is sufficiently Trussite that he is essentially a puppet for his predecessor".