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New chancellor Kwasi Kwarteng is reportedly considering whether to scrap a cap on bankers' bonuses.
Mr Kwarteng is said to believe that getting rid of the restrictions would grow the economy and make the City of London more attractive to global talent, bringing in further tax revenue.
The EU-era cap was introduced in 2014 in response to the financial crash some five years earlier, with member states complaining about excessive pay at a time when several governments introduced austerity measures.
The rules mean that bankers' bonuses must be capped at 100 per cent of their salary, or 200 per cent if shareholders agree.
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According to the jobs website Prospects, the average starting salary for a corporate investment banker is between £30,000 and £40,000.
This rises to between £50,000 and £70,000 after three years, although those with significant experience may earn a base salary of up to £165,000.
Within the current rules, a banker on £165,000 could in theory be given a bonus of £330,000.
Some analysts argued that bankers' bonuses incentivised the sort of risk-taking behaviour that resulted in the 2008 financial meltdown.
But critics of the cap have claimed that firms have been able to get around it simply by paying bigger salaries.
Earlier on Wednesday, Bank of England policy manager Andrew Sentance said getting rid of the cap now would fuel inflation.
For the financial year ending 2017, the last year for which Office for National Statistics data was available, the combined value of all bonuses paid to workers across all sectors in Great Britain was £46.4bn.
The largest contributor to that total was paid in the financial and insurance industries, which paid £15bn to their staff, or an average of £14,770 per person - around half of the average starting salary for a nurse.
That was down from £19bn for the 2007-8 financial year.
The chancellor has been warned that getting rid of the cap would be unfair to millions facing poverty and could repeat the blunders that lead to the 2008 financial crash.
The Trades Unions Congress (TUC) has criticised the move, saying it comes as real-term pay cuts have been imposed on public sector workers and while “millions are struggling to keep their heads above water”.
Mick McAteer, a former Financial Conduct Authority board member, said it was a “bad idea” that would encourage the aggressive risk-taking seen before the devastating 2008 crash.
Certainly! From the complex landscape of financial regulations to the intricacies of economic policy, this article delves into various concepts:
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Bankers' Bonuses & Caps: The article discusses the potential scrapping of a cap on bankers' bonuses. This cap was implemented in 2014 within the EU, restricting bonuses to 100% of bankers' salaries or 200% with shareholder approval. Scrapping this cap might impact risk-taking behavior and financial stability, as it's perceived to incentivize excessive risk-taking, potentially echoing behaviors observed prior to the 2008 financial crisis.
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Economic Impact: The proposed scrapping of the cap is framed as a means to stimulate economic growth by attracting global talent to London's financial sector. The argument suggests that abolishing the cap would benefit the economy and increase tax revenue.
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Financial Sector Salaries: The piece highlights salary figures within the financial industry, particularly for investment bankers. Starting salaries range from £30,000 to £40,000 and can rise significantly with experience, potentially reaching up to £165,000 as a base salary, not including bonuses.
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Bonus Structures and Financial Risk: Critics argue that uncapped bonuses could lead to riskier behaviors and financial instability, potentially echoing patterns observed during the 2008 crash. There's a concern that removing the cap might reintroduce the kind of excessive risk-taking that contributed to the previous financial crisis.
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Impact on Other Sectors: The article briefly touches on the disparity between bonuses in the financial industry versus other sectors. For instance, it mentions that the financial and insurance industries contributed significantly to the overall bonus pool in Great Britain, highlighting the discrepancy in bonuses received compared to other professions like nursing.
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Social Impact and Criticisms: Critics, including the Trades Unions Congress (TUC) and former Financial Conduct Authority board member Mick McAteer, express concerns over the potential unfairness of scrapping the cap. They argue that this move might exacerbate income inequality and adversely affect those facing financial struggles or poverty, echoing sentiments from the aftermath of the 2008 crash.
The discussion spans across financial regulations, economic theory, salary structures, risk management, and socio-economic implications, reflecting a comprehensive exploration of intricate financial and economic concepts within the context of policy decisions and their potential ramifications.
