British Finance Minister Kwasi Kwarteng has axed a cap on bankers' bonuses in an effort to boost London's finance sector after Brexit. The Friday announcement was part of a "mini-budget” presented by the Conservative Party politician. The move to boost bankers' income has prompted strong criticism from opposing parties and unions, given that the country is in the middle of a cost-of-living crisis. 

The rule, inherited from the EU and implemented since 2014, capped bankers' bonuses to double the amount of their salaries. It was introduced across the block in the aftermath of the global financial crisis when banks received large state bailouts.

However, the monetary limitation did not cap the total remuneration in practice, according to Kwarteng. "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. He further insisted that a strong UK economy "has always depended on a strong financial services sector."

Britain's weeks-old Prime Minister Liz Truss argued in favor of removing the cap, saying it would stimulate economic growth. 

A budget for the rich

British lawmakers and the Bank of England have always opposed the cap. The decision to nix the policy, however, comes at a sensitive time. The country is in the middle of a cost-of-living crisis that has forced the government to spend tens of billions to help households and businesses pay their energy bills. 

In another boost to high-earners on Friday, Kwarteng removed the 45% top rate of income tax levied on earnings above 150,000 pounds ($169,000, €168,624). A new top rate of 40% will be applied to all salaries above 50,000 pounds per annum. The finance minister argued that a high tax rate damages Britain' competitiveness and reduces incentive to work.

"This should have been a cost-of-living budget, but instead it's a bankers' budget," said Fran Boait, executive director at Positive Money, which campaigns for a fair financial system. "Rather than handouts for the richest, a much better use of borrowing would be public investment," she added.

Rachel Reeves, finance spokesperson for the main opposition Labour Party, said "It is all based on an outdated ideology that says if we simply reward those who are already wealthy, the whole of society will benefit."

Banks and financial experts told the Reuters news agency that scrapping the bonus cap will likely take time to have an effect. Instead, the sector has other demands such as scrapping government levies on bank profits, to boost competitiveness.

mk/dj (Reuters, AFP)