George Osborne has dropped his attempt to get the European Union to abolish its cap on bankers’ bonuses in what Labour described as a “humiliating climbdown”.
The Chancellor conceded defeat after the Advocate General for the European Court of Justice, Niilo Jaaskinen, said in a strongly worded legal opinion that it was “valid” to limit bonuses to 100 per cent of salary – or 200 per cent if enough shareholders approved.
The Government’s main argument was that capping payouts to no more than 200 per cent of salary undermines efforts to improve financial stability because it will result in higher basic salaries for bankers that cannot be clawed back if they damage their employers.
Mr Osborne conceded defeat in a letter to Bank of England Governor Mark Carney, saying: “It now looks clear that there are minimal prospects for success with our legal challenge so we will no longer pursue it.
“That should not stop us from pursuing our objective of ensuring a system of remuneration that encourages responsibility instead of undermining it.”
Mr Jaaskinen said the variable nature of bonuses “impacts directly on the risk profile of financial institutions”. He also dismissed ministers’ arguments that the EU was over-reaching itself and interfering in institutions’ ability to set pay, and even objected to the use of the term “cap”.
The shadow Chancellor, Ed Balls, said: “This is a humiliating climbdown by George Osborne, which he has tried to sneak out under the cover of the Rochester and Strood by-election.
“The Chancellor revealed his true priorities when he decided a year ago to spend taxpayers’ money fighting a bank bonus cap while working families face a cost-of-living crisis … Labour will reform the banks and levy a tax on bank bonuses to fund a paid starter job for young people out of work for over a year.”
Ukip’s leader, Nigel Farage, said it was “quite sensible of George Osborne to drop his legal challenge against the EU”, adding: “We always seem to lose anyway.”
The British Bankers’ Association said bonuses were “smaller”, adding that “staff are rewarded for making decisions that benefit the businesses, shareholders and the broader economy”.Reuse content