Liz Truss faces backlash over plan to lift cap on bankers’ bonuses – as it happened – The Guardian

This live blog has now closed, you can read more on this story here
Kwasi Kwarteng, the chancellor, is reportedly planning to scrap caps on bankers’ bonuses in a controversially timed move to attract more talent to the City of London.
Kwarteng will deliver his emergency mini-budget to bring in winter tax cuts for millions of people and set out more detail on energy support next Friday, sources have confirmed.
The UK has made a unilateral decision to continue suspending border checks on farm produce and other goods entering Northern Ireland from Great Britain, a move likely to antagonise the EU but not provoke further action.
In an interview with Times Radio Sir Lindsay Hoyle said he expects the Commons to be sitting next week and the three-week recess scheduled to cover the party conference period to be shortened. Responding to claims that the Commons was spending too much time in recess, he also said it sat for longer than most other parliaments.
He said:

What I would say on holidays is that we do sit more than most parliaments. I think there’s only one parliament in the world that sits longer than the House of Commons. We do sit a lot of weeks.
Sir Tim Loughton, one of the group of parliamentarians under sanctions from Beijing who are objecting to the Chinese government being invited to the Queen’s funeral (see 1.25pm), told BBC Radio 4’s World at One that he wanted to see the invitation rescinded. Britain “can’t possibly have official representatives of the Chinese Government attending such an important occasion”, he said. He explained:

I don’t know why this has happened. I don’t know whether it’s a conspiracy or cock up. You cannot have a golden age, normal relations, with a country which has now been exposed as committing the sorts of atrocities that it has, not least the genocide against the the Uyghurs.
Sharon Graham, the Unite general secretary, has said workers will be “appalled and angry” about the proposal to lift the cap on bankers’ bonuses.
Workers will be appalled and angry at these plans. When millions are struggling to feed their families and keep the lights on, the @GOVUK's priority appears to be boosting the telephone number salaries of their friends in the city. #bankersbonuses 1/3
Britain’s economy is now dominated by rampant profiteering. Removing the cap on bankers’ bonuses will make that worse. Last year Britain’s banks made £45.6 billion of profits. #bankersbonuses 2/3
So the Chancellor’s signal to the city is ‘let it rip’ further and further, while the Bank of England lectures workers about pay restraint. You could not make it up. #bankersbonuses 3/3
Downing Street has confirmed that Liz Truss will hold meetings at the weekend with a small number of the world leaders attending the funeral of the Queen on Monday. They are likely to take place at No 10 and at Chevening, the grace and favour home used by Truss when she was foreign secretary. As prime minister, she now has the use of Chequers, but it is not available because of routine maintenance work taking place.
These talks are not being described as formal bilateral meetings. No 10 is not expected to release readouts afterwards and No 10 said much of the discussion would probably involve reflecting on the Queen.
A group of MPs and peers under sanctions from China have expressed serious concerns about the Chinese government being invited to the Queen’s funeral, PA Media reports. Senior Tory MPs Tim Loughton and Sir Iain Duncan Smith wrote this week to the Commons Speaker calling it “extraordinary” that Chinese representatives should have received an invitation. The letter, also signed by the crossbench peer Lord Alton and Labour peer Lady Kennedy, says:

We are greatly concerned to hear that the government of China has been invited to attend the state funeral next week, despite other countries Russia, Belarus and Myanmar being excluded.
Given that the United Kingdom parliament has voted to recognise the genocide committed by the Chinese government against the Uyghur people it is extraordinary that the architects of that genocide should be treated in any more favourable way than those countries who have been barred.
The Chinese government is considering sending a delegation to the funeral on Monday in Westminster Abbey but President Xi Jinping is not expected to attend.
In the letter, the parliamentarians also express concern that Chinese officials could be admitted to the Palace of Westminster on the day of the funeral. They say:

It is also particularly inappropriate given that seven parliamentarians including ourselves remain sanctioned by the Chinese government and you along with the Lord Speaker have quite rightly barred the Chinese ambassador from attending the Palace of Westminster whilst these unjustified sanctions remain in place.
It may well be as part of the arrangements for foreign dignitaries attending the state funeral that facilities at the Palace of Westminster will be made available to them before or after attending the service at Westminster Abbey.
I am sure you will agree that it would be wholly inappropriate that any representative of the Chinese government should be able to come to the Palace of Westminster and that you can give us your assurance that this will not happen.
Update: Here is the text of the letter.
Along with Sir Iain Duncan Smith, Lord Alton and Baroness Kennedy I have written to Mr Speaker and the Foreign Secretary about the invitation to representatives of the Chinese government to attend the State Funeral next Monday.
You can read our letter to the Speaker below
The convention view at Westminster is that, regardless of the economic case for lifting the cap on bankers’ bonuses, politically it is a huge risk. But in his Inside Politics briefing for the Financial Times, Stephen Bush says he is not sure. Here’s an extract:

I’m also not convinced the political consensus is right on this one. Yes, anything that can be spun or described as increasing the amount that bankers earn (though the restriction on bonuses is not as simple as that, in any case) brings back to the fore all those perceptions voters have about how the Conservatives are the party of the rich. But it also brings back anxieties that Labour is a party of higher taxes for essentially everybody, and that Labour’s definition of “the rich” includes practically everybody …
Ultimately, the biggest political problem for the Conservatives isn’t whether they are seen as the party of the rich — a ship that has not just sailed, reached the new world, wiped out much of the indigenous population and established a global superpower — it’s that the UK public realm is in a terrible state.
Millions face either long waits for healthcare or have to pay out of pocket for private alternatives. Outside of murder and speeding, most crimes go unpunished. Schools face huge staffing and cost pressures. It’s more important, frankly, that Truss and Kwarteng find the extra revenues and the necessary reforms to fix public services than any of the domestic political rows they might have to have about bankers’ bonuses or any other route they take to increase growth and therefore tax revenue.
According to a story by Oliver Wright in the Times, next week’s emergency “budget” is now expected on Friday. Wright says:

On Thursday the new health secretary, Thérèse Coffey, is expected to make a statement on the NHS and then, most likely on Friday, the new chancellor Kwasi Kwarteng will unveil what the government describes as a “fiscal event”, which is likely to include plans to reverse April’s national insurance rise and freeze corporation tax.
Parliament had not been due to sit that day as it was supposed to break up on Thursday night for the party conference recess. However, it is now likely to sit on Friday to make time for Kwarteng’s statement. MPs are also expected to return earlier to Westminster than had previously been planned.
In its response to the legal proceedings launched by the EU over the Northern Ireland protocol (see 11.54am), the UK government has said that it has unilaterally decided to continue suspending border checks on farm produce and other goods entering NI from Great Britain, my colleague Lisa O’Carroll reports.
The European Union is considering its next steps after receiving the UK’s response to legal threats over the failure to comply with the post-Brexit Northern Ireland protocol, PA Media reports. PA says:

Despite politics as normal being paused while the nation mourns the Queen’s death, the government responded to the action ahead of today’s deadline.
The bloc had requested a response to its raft of infringement proceedings over the UK’s failure to comply with the rules before the end of the day.
European Commission spokesman Daniel Ferrie said: “I can confirm we have received a reply from the UK. We will now analyse the reply before deciding on the next steps.”
What the UK’s response contained was unclear, but the government was expected to set out how it believes that no operational changes on how the protocol works are required.
European Commission president Ursula von der Leyen will be in Westminster for the Queen’s funeral on Monday.
It is unclear if she will be meeting Liz Truss while in London, although Truss is expected to hold some talks with political leaders during their visits.
Sir Philip Augar, a former banker and the author of several books on the City, told the Today programme this morning that, from a messaging point of view, getting rid of the cap on bankers’ bonuses was “absolutely terrible”. He explained:

Few of us would disagree with the idea that bankers get paid too much. They got paid too much in my day when I worked in the industry, and that’s even more true now.
But he said that Kwasi Kwarteng, the chancellor, was right to think that the cap on bonuses was flawed. He went on:

Counter intuitively, the bonus cap hasn’t helped at all. In fact, it’s made things worse because banks have simply got round the cap by increasing salaries, and that means they’re locked into a very high total compensation package. Bankers have done even better.
So, although instinctively it feels wrong, I can understand the chancellor’s point of view if this is what they do.
He also said he agreed that lifting the cap might make the City more competitive.

Particularly on the investment banking side – that’s the trading and markets business – it’s a globally competitive industry. Pay rates are set, not in London or in Europe, but in New York, and I can understand the idea that you might want to make London more competitive by freeing up the cap.
Philip Aldrick, an economics reporter at Bloomberg, makes a similar argument on Twitter, pointing out that Mark Carney, the former governor of the Bank of England, was opposed to the cap.
On scrapping the banker bonus cap. Carney and the BOE thought it was bad for financial stability as it fixed salary costs after years spent designing maluses and clawbacks to improve incentives. Cameron's 2016 negotiation for new EU member terms would have seen the cap scrapped.
A portion of bonuses were supposed to be paid over time in stock and can be cancelled later. Banks created "allowances" to get round the cap. But the problem is salaries have now shot up. The old variable structure – lower fixed pay, higher bonus potential -needs to return
Here's Carney in 2014 on how best to handle banker compensation for financial stability outcomes. The BOE spent ages calibrating a plan to make sure incentives were improved. Then EU imposed the crude bonus cap, and base pay soared, making the careful plans largely redundant
Patrick Hennessy, a former Labour spin doctor, has posted this on Twitter in response to the FT story about Thérèse Coffey.
Churchill wrote this memo while the Battle of Britain raged in the skies
Julian Jessop, economics fellow at the Institute of Economic Affairs, a free market thinktank which is highly regarded by Liz Truss, says lifting the cap on bankers’ bonuses would send a “positive signal” to the City.
"Kwarteng seeks to scrap bankers’ bonus cap to boost City of London"…👍

I don't think the cap has a huge impact, but getting rid of it would send another positive signal.

ps. the “pay rises for bankers, pay cuts for nurses” narrative is lazy… (1/2)
… allowing commercial #banks to pay some of their staff more will have no impact on public sector pay, except perhaps a positive one (more tax revenues).

There are also much better ways to discourage excessive risk-taking in the #City, incl. long-term incentive schemes.

Thérèse Coffey, the new health secretary and deputy prime minister, has angered some NHS staff “by telling them to ‘be positive’ and avoid using policy wonk ‘jargon’ as they grapple with job cuts and the deepening cost of living crisis”, the Financial Times reports. Coffey issued her instructions in an email setting out her communication preferences. It even mentioned her dislike of the Oxford comma.
In their story Donato Paolo Mancini, Sarah Neville and Jasmine Cameron-Chileshe report:

Insiders said that the instructions — entitled “New secretary of state ways of working preferences” — had been published on the Department of Health and Social Care’s intranet. An email, seen by the Financial Times, shows Coffey’s guidance was also forwarded to UK Health Security Agency staff.
The rubric has angered health workers, many of whom were on the front lines during the Covid pandemic and who now face real-terms pay cuts and added pressures as infection rates are expected to rise over the winter.
Coffey’s office asked employees to “be precise” and “be positive — if we have done something good, let us say so and avoid double negatives”.
The email was “super patronising . . . It does make you consider if you’re in the right place when a new minister comes in with this,” said one person with knowledge of the mood at UKHSA ….
Another senior public health official said they understood that staff would see the reference to Oxford commas, in particular, as “extremely patronising”.
Luke Hildyard, executive director of the High Pay Centre thinktank, says removing the cap on bankers’ bonuses would be an “ideological measure” that favours the rich. He says:

The bonus cap has probably helped to contain bankers’ pay awards but they’ve still reached record highs this year while the rest of the country has undergone an epic cost-of-living crisis and profound economic hardship.
We know that bonuses in the financial services sector have helped the richest 1% of the population to capture an increasing share of total UK incomes.
Removing the cap would be a pro-rich ideological measure that sends a depressing message about who policymakers listen to and think about when making economic policy.
And here is some reaction to the proposal to lift the cap on bankers’ bonuses from political journalist and commentators.
From Lionel Barber, former editor of the Financial Times (aka the Bankers’ Gazette)
If you no longer have friction-free access to the EU’s single market in financial services, you will be tempted to lift the cap on bankers’ bonuses to compensate the City of London. Doesn’t feel like a game changer and at this moment, it’s politically toxic. Welcome to Brexit!
From my colleague Pippa Crerar
Kwasi Kwarteng’s plan to scrap the cap on bankers’ bonuses may be intended to encourage growth, but it is politically toxic. (h/t @GeorgeWParker)
Labour will be rubbing their hands with glee.
From Chris Giles, economics editor at the FT
There is a legitimate argument whether a cap on bankers’ bonuses is good or bad for growth (short term and long term)….

There should be no argument that the effect is


* so long as it does not come with many more incentives to take big risks with others’ money
From Sky’s Beth Rigby
Fascinating @FT splash. Kwateng could scrap bankers’ bonus caps. Logic = make London more competitive, sell as Brexit benefit

But certainly not a vote winner. Bankers bonuses + no windfall tax a bold & genuine ideological break between parties I’ve not see for a decade 1/
(Rigby may have forgotten about Jeremy Corbyn.)
What’s the logic? Scrap cap intro’d via EU 2014, as part of wider deregulatory reforms. Aim = make City more attractive place for biz. That grows economy, helps Exchequer. BUT, the political risk at a time when people struggling & pub services deteriorating, HUGE political risk
As senior exec at EU firm tells @FT: “It’ll make it even harder for us to compete in London & with US banks overall” But quoted saying this too: “It is not a vote winner, I am surprised it is being talked abt” >UK long opposed cap. But Johnson didn’t move on for fear of backlash
Protecting energy companies against windfall taxes & allowing big banker bonuses. What’s the gambit? Seems to be take short term political pain now in order to boost ec growth (this Truss & Kwateng’s mantra) by time of next election. But brace for the backlash, this a huge gamble
From my colleague Peter Walker
With policies like this, and the complete ruling out of an expanded windfall tax, it’s probably fair to say the Truss government isn’t ruled by focus groups and polling. Will be interesting to see how long that lasts.
From Jon Sopel from the News Agents podcast
Remove cap on bankers’ bonuses, no new windfall tax on energy companies and tax cuts to come that will favour the most well off. Well, you can’t fault the @trussliz government for boldness. But fairness?
The TUC has said the government should be focusing on pay rises for everyone, not increasing bankers’ bonuses. In a statement, Frances O’Grady, its outgoing general secretary, said:

Bonuses in the City are already at a record high.
While City executives rake it in, millions are struggling to keep their heads above water.
Working people are being walloped by soaring prices after the longest and harshest wage squeeze in modern history.
The chancellor’s number one priority should be getting wages rising for everyone – not boosting bumper bonuses for those at the top.
To get pay rising across the economy, the chancellor must deliver a plan for a £15 minimum wage, fund decent pay rises for all public sector workers and introduce fair pay agreements for whole industries.
Good morning. Politics has been on hold this week not just because the government and opposition parties have suspended almost all announcements but because to a large extent they are not even commenting on political matters at all, out of respect for the period of mourning for the Queen. But from the Treasury, where officials are working hard on next week’s emergency budget, and cobbling together a mechanism for implementing the energy price guarantee, some news does seem to be seeping out. Earlier this week we learned that Kwasi Kwarteng, the new chancellor, has told officials to focus “entirely on growth”. And today the Financial Times reveals that he wants to lift the cap on bankers’ bonuses.
My colleague Kalyeena Makortoff has coverage of this on the business live blog.
The idea has already triggered a backlash. Andrew Sentance, who was a member of the Bank of England’s monetary policy committee during the financial crash, told the Today programme this morning. He said:

I think it sends a rather confused signal when people are being squeezed in terms of the cost of living and the government’s trying to encourage pay restraint in the public sector. So to appear to allow bankers to have bigger bonuses at the same time doesn’t look very well timed.
There may be some longer term arguments for pursuing this policy, but I think the timing would be very bad if they did it now.
And in a Twitter thread starting here, Mick McAteer, a former board member at the Financial Conduct Authority, says this is a “bad idea” that will encourage aggressive risk taking.
Interesting discussion on @BBCr4today about gov scrapping bankers bonus cap.
There's a number of reasons why this is a bad idea.
Will encourage the type of aggressive, risk taking socially useless market behaviours we really dont need. 1/
The cap on bankers’ bonuses was introduced as an EU rule after the bonus culture in banking was seen as contributing to the risk taking that triggered the financial crash. George Osborne and the Tory chancellors who followed him never liked it on principle, but after Brexit they shied away from pledging to get rid of it because they realised that, regardless of the economic arguments, the politics of such a move would be terrible.
But Liz Truss is a more ideological prime minister than any of her immediate predecessors. Kevin Schofield from HuffPost UK thinks populism may now be out of the window.
Liz Truss seems to want to lead the first ever anti-populist government.
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