Osborne stands alone as EU backs bonus cap

 
George Osborne meets other European finance ministers George Osborne has found little support for his objections to the bonus cap in Brussels

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Chancellor George Osborne stood isolated after European Union finance ministers vowed to press on with proposals to curb bankers' bonuses.

He told a meeting of EU finance ministers that he could not back the plans, which he fears could damage London's financial centre.

The EU is proposing to cap bonuses to 100% of a banker's annual salary, or to 200% if shareholders approve.

There will be further talks, but all other countries backed the plan.

Those negotiations will take place over the next few weeks ahead of a a formal vote at the European Parliament in April, and the UK will hope to win some concessions as the details are finalised.

Supporters of the bonus cap need roughly a two-thirds majority to pass the legislation, however, meaning the new rules can come into force even with British opposition.

Speaking after the meeting, Mr Osborne said the UK already had the toughest regime in Europe for bankers' pay and bonuses and that a cap could "have a perverse effect".

Further talks

Analysis

This is an argument that the UK has basically lost.

The EU Commissioner for Financial Services, Michel Barnier, said it was "crystal clear" that the bonus cap would be imposed.

There will be further technical negotiations on some of the details: there will be a focus on a closer link between bonus schemes and long-term performance; and perhaps an increase in the amount of bonus that can be deferred and therefore discounted when the total pay-out is being calculated.

But EU officials say any alterations will have a pretty small impact on the amount of bonus that can be paid. Other countries want to find consensus with the UK - the German and Italian finance ministers said so explicitly.

But there is not much room for manoeuvre. It is almost unprecedented for a significant piece of financial legislation to pass in Europe without British backing - but that could be about to happen. And for some in the City, that is a worrying straw in the wind.

There were signs of support for the UK from Germany and Italy at Tuesday's meeting. German Finance Minister Wolfgang Schaeuble, for example, said "it would be better'' to reach consensus with the UK.

However, the UK chancellor can only really hope to tinker at the margins of the deal, BBC Brussels correspondent Chris Morris says.

EU officials say any alterations would have a pretty small impact on the total bonuses that can be paid.

Shadow chancellor Ed Balls said it was "no wonder" that George Osborne found himself outvoted 26-to-1 at Tuesday's meeting.

"He failed to engage with these sensible proposals to limit bonuses... until the very last minute," Mr Balls said.

"It shouldn't take the European Union to rein in excessive bonuses, but George Osborne has dragged his feet and refused to act in Britain."

The bonus proposals are part of wider measures requiring banks to strengthen their capital buffers in the hope of avoiding another financial crisis.

Michel Barnier, the EU commissioner for the single market, said high bonuses were behind excessive risk-taking by bankers. "Enough is enough. We've got to put a stop to that."

'Unintended consequences'

It is very unusual for a significant piece of financial legislation to pass without the backing of the UK, whose capital London is Europe's major financial centre.

The Mayor of London, Boris Johnson, has dismissed the bonus cap as "self-defeating". The City fears the rules will drive away talent and restrict growth.

Simon Lewis, chief executive of the lobby group the Association for Financial Markets in Europe, said the proposed measures were not just a threat to the City of London, but to Europe's competitive position in financial services.

He told the BBC: "If this goes ahead, you will see the law of unintended consequences. Salaries will go up, there will be less flexibility, and the banks will be less competitive."

Last week the Federation of European Employers questioned whether restrictions on bankers' pay exceeded EU powers.

There has been speculation that the UK may try to invoke a little-used "national interest" defence to block attempts to curb bonuses.

The so-called "Luxembourg Compromise" allows a member state to block a majority decision being taken if an issue is deemed to seriously affect "a very important national interest".

Some banks have reportedly taken legal advice on whether the EU's proposals are within the law, according to the Financial Times on Tuesday. One bank had already received legal opinion that the bonus measures contravened European law, the FT said.

Mr Lewis told the BBC that he "was sure" lawyers would be looking at whether the proposals were lawful, but added that "these are early days".

The European Commission has said that it is confident the proposals are legally watertight.

 

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  • rate this
    +28

    Comment number 80.

    What is it with this brightest talent' argument. Isn't that argument a bit flawed considering it was the same one used to justify the obscene bonuses for Goodwin and his chums.
    Let them leave, believe me, they are easily replaceable.

  • rate this
    +160

    Comment number 79.

    Cap Pay - OK
    Cap NHS spending - OK
    Cap Defence spending -OK
    Cap Rents - OK
    Cap Benefits - OK
    Cap Bankers bonuses - WHAT!!! NO WAY, how will the poor bankers survive when their bonuses will be limited 100% of their salary.

    Typical Tories.

  • rate this
    -34

    Comment number 78.

    Do people here actually understand how the banking system works?

  • rate this
    +125

    Comment number 77.

    "The City of London fears the rules will drive away talent..."

    Jolly good. I'll help them pack.

    The real talent is already being driven away George. The hard working, educated people leaving this country in droves due to an imcompetent bunch of politicians doing favours for their friends in the city while taxing the rest of us stupid.

  • rate this
    +15

    Comment number 76.

    The shareholders are the owners of these businesses but have no binding say on the bonuses and pay of the top execs. Why? Because most of the shares are held by ordinary people through pension schemes etc and we would hold their obscene pay in check. The fund managers do not represent our views and are part of the big scam. George, represent the real hardworking Britons, not the ultra rich sharks!

  • rate this
    0

    Comment number 75.

    66.flipmode

    For example - Fred Goodwin - Messed up RBS , huge bonus and pension , that we the tax payer are forking out for when we don't have enough money to pay our own bills.

    The sooner you're bunch are out of government the better.
    -------
    Err.. Labour were in power then. Presumably you won't be wanting them back then?

  • rate this
    +3

    Comment number 74.

    "bank on dave" bring it on,
    just like the "old fashioned banks"

  • rate this
    +13

    Comment number 73.

    Worst chancellor ever... If you or I performed as he has we would of been sacked long ago. The only reason he is still there is because of his rich chums he went to private school with.

  • rate this
    +9

    Comment number 72.

    This government is a joke. how much have the tax payers spent keeping his mates in work. Ashamed to be British.

  • rate this
    +17

    Comment number 71.

    No bonus cap, no regulating of every companies profits, cutting of top tax band.

    Pastie tax.

    They can't even be bothered to hide it. Sickening.

  • rate this
    +11

    Comment number 70.

    They say these bonuses reward the best people. If they're the best people no wonder we're in trouble.

  • rate this
    -61

    Comment number 69.

    Brussells leeches £53,000,000.00 (yes 53 million!) Every day from Britain, now they want to cripple the British financial institutions and drag the business to the continent.

    Cut the C(r)AP - France is sucking tax-payers money...

  • rate this
    +5

    Comment number 68.

    "Osborne tells finance ministers he wont (sic) back bonus cap"
    "Chancellor George Osborne has told European Union finance ministers that he *cannot* support proposals to curb bankers' bonuses."

    Cannot or will not? Can you be a bit more specific? One suggests Osbourne's arm is being twisted (so much for democracy then), the other implies he is acting of his own accord (frankly unlikely).

  • rate this
    +10

    Comment number 67.

    They clearly care more about their chums in the City than the voters of this country. The reckoning may yet come at the next election - but I suppose Osborne & Co. already have well-paid 'jobs' lined up for them in a financial institution.

  • rate this
    +14

    Comment number 66.

    Mr Osbourne

    Do you care to comment on bonuses for people how have failed in their role ?

    For example - Fred Goodwin - Messed up RBS , huge bonus and pension , that we the tax payer are forking out for when we don't have enough money to pay our own bills.

    The sooner you're bunch are out of government the better.

  • rate this
    +17

    Comment number 65.

    I'm just sick and tired of being screwed by these self serving parasitic politicians who tell us 'we're in it together' and work hand in hand with the very people who put us in this mess in the first place.

    They're scum.

  • rate this
    -7

    Comment number 64.

    Of course people answering "yes" to the "Can you afford this mortgage?" question when actually they should have answered "no" had nothing to do with the financial meltdown, it was all caused by bankers' bonuses...

  • rate this
    -7

    Comment number 63.

    The British Government should veto this deal without reservation. The EU finance ministers are shutting the door after the horse has bolted, been slughtered and served up in a frozen ready meal.

    Whether you agree or not, the principle of self-determination is at stake here.

  • rate this
    +13

    Comment number 62.

    It would be such a shame if these regulations drove away all these talented bankers. The country would miss them the same way someone might miss their tapeworms.

  • rate this
    -2

    Comment number 61.

    On the one hand the size of some bonuses is obscene. On the other hand I cant but help think that rather than a means of producing better more productive banking/finance sectors the EU planse are just a knee jerk token measure borne of a desire to gain popularity & the moral highground. It might make politicians feel good about themselves but I fail to see how it will produce a better banks

 

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