Osborne has taken legal action against plans by the EU to cap bankers’ bonuses at one times annual salary, or double that if a majority of shareholders agree to it.
It’s a brave move for Osborne, who risks looking rather dastardly, particularly following Ed Miliband’s crowd-pleasing ‘cheap power to the people’ move earlier this week.
But actually the chancellor’s argument is pretty resilient: in a statement, the Treasury said that the EU rules had been ‘rushed through without any assessment of their impact [and] will undermine [work done to make bankers behave more responsibly] by pushing bankers’ fixed pay up rather than down, which will make banks themselves riskier rather than safer’.
In other words, if banks can’t attract the best talent with bonuses, they’ll find other ways to incentivise them. And salaries aren’t as easy to withhold – or claw back – if something goes wrong.
Of course, the chancellor is acutely aware that any such rules would disproportionately affect London, the EU’s financial capital. But the worry is that it isn’t just Londoners it’ll hurt – it’s also our banks, because the rules would affect EU banks working overseas. Which would mean that the likes of HSBC and Standard Chartered, both of which have huge presences in Asia and the US, would find it hard to compete with their local rivals.
It isn’t the first time the Treasury has lodged a lawsuit against EU rules. This week, it made inroads in a case against plans to launch a watchdog on short selling. It also has three other court battles on the go.
In the case of bankers’ bonuses, though, the danger is that the lawsuit will take so long that the rules will come into force anyway (they’re slated to be launched in 2014) – making it difficult for banks’ remuneration committees to work out what to do in 2014.
Nevertheless, a study by the Centre for Economic and Business Research reckons that at a total of £1.6bn, City bonuses in 2012-13 were more than 60% lower than the year before, and 85% lower than the £11.5bn paid out in 2007-08. The heart bleeds…