The UK Government is maintaining a policy from the short-lived Truss administration that would see the cap on bankers’ bonuses scrapped at the end of the month. To announce a policy like this during a cost of living crisis is either an act of sheer incompetence or it is the last act of cronyism from an administration that knows its fate.
The announcement comes just as the Joseph Rowntree Foundation releases their report into destitution in the UK, showing that the number of people living in destitution is two and a half times higher than in 2017. Destitution is above and beyond normal poverty, it includes not being able to fully feed yourself and your family or heat your home.
The cap on bankers’ bonuses, which limits payouts to twice the base salary, is an EU law left over after Brexit and its removal is part of the UK Government’s post-Brexit strategy to boost growth in the City of London.
The cap was introduced in the wake of the Financial Crisis to end the era of unlimited bonuses incentivising bankers and other finance workers to take huge risks which were undoubtedly responsible for the crisis.
The policy was initially announced by the then-Chancellor Kwasi Kwarteng in his disastrous and now infamous mini-budget. Most of the policies set out in the mini-budget were later undone by Mr Kwarteng’s successor, but this one remained and is due to go into force from 31st October.
Even the bankers don’t want it
When the cap was initially imposed back in 2014 the UK’s top financial regulators and firms were against it, insisting that it limited the flexibility of banks to adjust to suit the firm's financial performance. However, they now appear not to fully support its removal for fear of public backlash.
Labour’s reaction to this announcement will be another interesting watch as Labour Leader, Keir Starmer is previously on the record saying that the Conservatives’ plan amounted to “pay rises for bankers, pay cuts for district nurses” when the plan was announced back in June 2022. Since then however, Starmer has sought to curry favour with the City ahead of the next General Election.
UK Government fails to read the room
Most people will see this announcement for what it is, a Hail Mary attempt by an on-the-way-out administration to boost the on-paper growth figures ahead of what is certain to be a disastrous election for the Conservatives. However, once again the Tories have completely misread the room.
We are living through a cost of living crisis where people up and down the UK cannot afford to clothe and feed themselves; or heat their homes. In its recent ‘Destitution in the UK 2023’ report the Joseph Rowntree Foundation has revealed that approximately 3.8 million people in the UK experienced destitution in 2022, including around one million children. This is almost two-and-a-half times the number of people in 2017 and nearly triple the number of children. These numbers are staggering and shameful.
Scotland, however, has been hailed for its policies aimed at tackling poverty and destitution. Make no mistake about it, destitution is still on the rise in Scotland; albeit significantly more slowly than the rest of the UK. Due to policies like the Scottish Child Payment and free meals for school children during the holidays, Scotland’s destitution levels are now below the UK average.
The past thirteen years of Conservative governance can be summed up by the figures from the JRT destitution report, triple the number of children are living in destitution than in 2017.
Scotland, however, is carving a different economic path, one that is based on the wellbeing of society and of the planet. The praise Scotland received for its policies aimed at tackling poverty and destitution such as the Child Payment are further examples of how Scotland and the UK are diverging in their economic priorities (a topic we have covered previously). It is this economic divergence that will create a happier, healthier, wealthier, more prosperous and ultimately independent Scotland.