Alistair Darling has refused to cap the level of pay and bonuses handed to the bosses of Britain's bailed-out banks because of the dent it would make in Treasury coffers.
The Chancellor told MPs yesterday that while the Government was keen to take action on excessive remuneration in the financial sector, he added his view was "double-edged" because a strict ceiling would leave a black hole in tax revenues.
"It follows that if people are not paying bonuses then less is coming into the Revenue," he said. "On balance I think it is a good thing that we ensure that the excesses in the banking industry are brought to an end. However it does mean that our revenues do suffer as a result."
Giving evidence to the Treasury Select Committee, the Chancellor said that about 12 per cent of the Government's income tax and national insurance take traditionally came from the financial sector and that would be hit by an executive pay cap. He also warned that a cap would lead top bankers, who the Treasury sees as key to turning around Britain's bailed-out banks, to take higher-paid jobs overseas.
The Centre for Economic and Business Research has predicted that £3.6bn will still be paid out in bonuses in the financial sector this year, despite the excessive risk-taking that led to the credit crunch.
While the Chancellor rejected calls for an upper limit, a compulsory code designed to curb pay in the future seems certain to be part of the Government's response to public outrage over perks for failed bankers, including the £703,000 handed to the former RBS chief executive, Sir Fred Goodwin. "A code in respect to how remuneration is structured is absolutely essential," Mr Darling said.
He also hinted that he would substantially downgrade his figures for growth announced in November's mini-Budget, which predicted that the recovery could begin as soon as the summer.Reuse content