Britain on Friday axed a cap on bankers’ bonuses aimed at boosting London’s finance sector after Brexit, raising anger amid a cost-of-living crisis.
Finance minister Kwasi Kwarteng removed an EU-inherited policy that limits bankers’ bonuses at twice the basic salary.
But the move, along with the scrapping of the top income tax bracket, triggered stinging criticism from opposition parties and unions.
New British prime minister Liz Truss, whose finance chief also outlined a costly freeze on energy bills to help households and business, said removing the bonus cap would stimulate economic growth and jobs.
Kwarteng followed up by stating that Britain needed ‘global banks to… invest jobs here and pay taxes here in London — not in Paris, not in Frankfurt and not in New York’.
‘All the bonus cap did was to push up the basic salaries of bankers or drive activity outside Europe,’ the chancellor of the exchequer told parliament in a mini budget on Friday.
‘It never capped total remuneration… so as a consequence of this we are going to get rid of it.’
A strong UK economy ’has always depended on a strong financial services sector’, Kwarteng insisted.
Britain’s cap had been in place since 2014, a legacy of membership of the European Union that Britain exited last year.
Brussels introduced the cap across the bloc following the global financial crisis, when banks received enormous state bailouts.
In another boost to high-earners on Friday, Kwarteng removed the 45-per cent top rate of income tax levied on earnings above £ 1,50,000 ($ 1,69,000).
A new top rate of 40 per cent would be applied to all annual salaries above £ 50,000.
Opposition politicians slammed the budget as boosting the rich, although income tax was cut slightly for all earners.
‘It is all based on an outdated ideology that says if we simply reward those who are already wealthy, the whole of society will benefit,’ said Rachel Reeves, finance spokeswoman for the main opposition Labour party.
Conservative party MP Kwarteng said his measures would bolster growth, as economists warn that Britain was likely already in recession.
‘High tax rates damage Britain’s competitiveness,’ warned Kwarteng, adding they ‘reduce the incentive to work, invest, and start a business’.
He also scrapped a planned tax rise on company profits.
Britain had planned to ramp up corporation tax to 25 per cent from 2023.
Instead, it will remain at 19 per cent — the lowest in the G20.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said the chancellor had sparked a ‘firestorm’ over the tax measures.
‘Kwasi Kwarteng has set off fireworks with this budget, while sparking a firestorm of criticism about benefiting the wealthy much more than the poorer sections of society,’ she noted.
‘Scrapping the top rate of tax will return many thousands of pounds to high earners, while lifting the cap on bankers’ bonuses is likely to be hard to swallow for low paid workers.’