EU banker bonus cap is a ‘crude tool’ with ‘perverse’ outcome, says MP

21st November 2014

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Politician Andrew Tyrie has criticised the EU’s banker bonus cap plan as a ‘crude tool’ as the government withdraws its challenge against the plan.

 

Chancellor George Osborne made the shock decision yesterday to withdraw a legal challenge to the EU legislation that would put a cap on banker bonuses, stating that he recognised the challenge was ‘unlikely to succeed’.

 

The cap plans to restrict bonuses to 100% of a bankers’ pay or 200% with shareholder approval.

 

Tyrie (pictured), chairman of the Treasury Committee and former chairman of the Parliamentary Commission on Banking Standards, waded into the argument and criticised the cap.

 

‘The EU bonus cap is a fundamentally flawed approach,’ he said. ‘It has perverse and unintended consequences. The Parliamentary Commission on Banking Standards rejected it as a crude tool. It will encourage banks to increase fixed pay rather than embed incentive structures that improve standards.’

 

The Treasury had argued that the cap would mean the most talented bankers would leave Europe and the measure would inflate basic pay so banks could not as easily trim costs in tough times.

 

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.’

 

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