Member Article

UK withdraws challenge to EU cap on bankers' bonuses

George Osborne has withdrawn the UK’s legal challenges to EU plans to limit the amount bankers can receive in bonuses.

Osborne said of the shock move, that he had recognised the challenge was “now unlikely to succeed”.

The cap restricts bonuses to 100% of banker’s pay or 200% with shareholder approval, and is intended to reduce incentives for bankers to take ‘excessive’ risks.

Its opponents in the UK said that the cap would drive ‘talent’ out of Europe and inflate basic pay making it more difficult for banks to make savings.

This comes after an adviser to the European Court of Justice rejected the UK’s legal arguments against the plan.

Osborne said: “I’m not going to spend taxpayers’ money on a legal challenge now unlikely to succeed.

“The fact remains these are badly designed rules that are pushing up bankers’ pay not reducing it.

“These rules may be legal but they are entirely self-defeating, so we need to find another way to end rewards for failure in our banks.”

Labour’s Shadow Chancellor, Ed Balls said: “This is a humiliating climb down by George Osborne.

“He should tell taxpayers how much money he has now wasted on this challenge, which we warned him against.

“It shouldn’t have taken the EU to act to rein in excessive bonuses, but George Osborne has totally failed to act here in Britain.”

Mr Osborne also wrote a letter to Bank of England governor Mark Carney, in which he said that although the Treasury was abandoning its challenge, it “should not stop us from pursuing our objective of ensuring a system of remuneration that encourages responsibility instead of undermining it”.

“Ensuring that firms incentivise employees to behave in the right way is essential to restoring public trust in financial markets,” he added.

Mr Carney had himself voiced concerns about the EU measure, saying it had the “undesirable side-effect of limiting the scope for remuneration to be cut back”.

This was posted in Bdaily's Members' News section by Clare Burnett .