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
    +4

    Comment number 100.

    @79 CodeDebugger
    You highlight a good point. Osborne doesn't even want to -cap- banker's bonuses, and that even at a monumental level.
    Most of the other things you list have not merely been capped, but cut in real terms, many of them so savagely as to render them dysfunctional.

    Bankers add very little to society, they just gamble with our earnings.

  • rate this
    +8

    Comment number 99.

    This just goes to prove that the goverment hasn't learnt a thing from the last banking crisis.

    How can he justify his actions when the country is in such a mess.

    Most of us don't get a bonus for doing our jobs well, nevermind getting a huge bonus for putting the country in a recession

    Again the vast majority will suffer for the greedy minority.

    2015 = the end of Tory ruling

  • rate this
    -8

    Comment number 98.

    I understand from the public's point of view why this policy is popular but I think it will be a disaster for the city of London. The countries truly benefiting from this are Singapore and New York who are already seeing an exodus of high earning bankers trying to avoid complex European tax regimes. Imagine the reduction in income tax returns if these bonuses are not paid - GB will be worse off.

  • rate this
    +18

    Comment number 97.

    Talent. What talent.

  • rate this
    -10

    Comment number 96.

    Why don't we just save time and export the entire banking system off shore to somewhere else?

    Oh hang on! How would we pay for the treasured National Health Service?

    Why not also cap Germany's car industry and France's wine industry "oh environmental and health grounds"?

    Unelected EU idiots removed from the real world putting forward hugely job damaging proposals. Knee jerks springs to mind.

  • rate this
    +6

    Comment number 95.

    The cap is sensible. A limit at 200% of salary implies you may make a decision to get the bonus and not act in shareholder's interest.
    Do not forget the bonus/commission is a financial reward for working.

    In industry bonuses at a level of 25% is seen as reasonable.

    GO has made no case. It is the will of the people that they are capped a lot lower.

    GO GROWTH is what you should be doing

  • rate this
    +5

    Comment number 94.

    It puzzles me how they continue to crush hardworking peoples pay and work extra hard to ring fence bankers pay and bonuses

  • rate this
    +20

    Comment number 93.

    "City of London fears the rules will drive away talent & restrict growth.
    Most members of the 27-nation EU are firmly behind the proposals"

    If this means driving away the same "talent" which caused the ruin of this country in 2008 then I welcome it.
    But wait a minute...drive it away to where exactly?
    Certainly none of the 27 EU members that's for sure.
    I say lets call their bluff. Go on sod off!

  • rate this
    +9

    Comment number 92.

    I thought we were all in this together?

  • rate this
    +11

    Comment number 91.

    The rich get richer while the poor get poorer and the ones in the middle sit on the fence till it catches them up. We all talk the talk but no one dares walk the walk.

    Sorry to put a downer on it but till we the people stand up and take back our dignity and rights we will just go on as is till the bankers and 1% have everything.

    Next election ignore the Lab, Lib, Cons as they are the same old BS

  • rate this
    +14

    Comment number 90.

    Well George perhaps you should copy Switzerland and have a referendum. I wonder which way the public would vote?

  • rate this
    -8

    Comment number 89.

    The financial services industry is almost the last successful industry we have.
    It brings in £Billions to the treasury. If we lose that what else are we going to cut to make up for the loss of revenue? Or will we be happy for increased income tax instead?

  • rate this
    +12

    Comment number 88.

    64.AndyDaines

    People COULD afford their mortgages until your tory chums (thats obvious) fixed it so that we were all dropped into the provebial mire.

    Their credo (and yours I suspect) is to keep the poor down so that we 'know our place'.

    They're disgusting and the sooner they're gone the better

  • rate this
    -13

    Comment number 87.

    Is this going to set a precedent for the EU- i.e in terms of it assuming to itself the powers to regulate the pay and rewards of all employees across the EU? Bankers now but who next?

    As for the question of whether or not Banks/banking staff/traders will leave the UK - who knows for sure but why risk it ?

  • rate this
    +16

    Comment number 86.

    Well, congratulations to Osborne for showing us all who this government's real employers are. No doubt they've already put his latest thirty pieces of silver into that numbered account in the Caymans.

    The Tories and their employers think they are untouchable aristocrats - isn't it time to start building a few tumbrils and guillotines?

  • rate this
    +2

    Comment number 85.

    78 Yes I think they are beginning to and that is why they are so angry.
    By the way where are the LIBDEMS on this?

  • rate this
    -220

    Comment number 84.

    The chancellor is standing up for the well-being of Britain, although few can see it behind their seething anger towards those more successful and subsequently more wealthy than themselves. Introducing this cap will see the UK lose its competitive edge which attracts many of the richest here to work and, therefore pay obscene amounts in taxes, not to mention economic growth brought with business.

  • rate this
    +22

    Comment number 83.

    There is one thing that is endemic in the UK - reward for failure. We see it all to often and Osborne seems to be acting as a 'trade union leader' for the bankers.

  • rate this
    +23

    Comment number 82.

    What a surprise. George supports the 'right' of bankers - who caused the crash - to reward themselves with astronomical amounts of money. Apparently, this largesse is to ensure they stay in London, creating wealth for themselves by gambling on very important things which your average prole can't understand.
    The poor must pay for this charade, the discipline of abject poverty their prize.

  • rate this
    +19

    Comment number 81.

    Name one Tory economic policy to boost the economy.

    Relying on the banking sector propped up by a service industry caused this meltdown in the first place.

    78.JimWhitby

    "Do people here actually understand how the banking system works?"

    Yes they gamble with our money and get extremly rich in the process.

 

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