In a surprise surrender, Chancellor George Osborne has announced that the UK government has dropped its legal challenge to EU legislation capping bonuses, saying that this is “unlikely to succeed.”
The cap limits bonuses to 100% of bankers’ pay, or 200% with shareholder approval, in a bid to disincentivise bankers from taking excessive risks.
However, the Treasury claimed that these caps are too draconian and would push talent out of Europe while inflating basic rates of pay, making it more difficult for banks to cut down costs during less profitable years.
The legal claims put forward by the UK government were rejected by an adviser to the European Court of Justice.
Osborne commented: “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.”
The cap on the ratio is designed to reduce incentives for bankers to take excessive risks, but critics say it will push up basic pay and banks’ costs.
Osborne’s withdrawal attracted a scathing attack from Labour’s Shadow Chancellor, Ed Balls, who said: “This is a humiliating climb down by George Osborne…He should tell taxpayers how much money he has now wasted on this challenge, which we warned him against.”
“It shouldn’t have taken the EU to act to rein in excessive bonuses, but George Osborne has totally failed to act here in Britain.”