The shadow chancellor, Rachel Reeves, has confirmed that the Labour Party has no plans to reinstate a cap on bankers’ bonuses that was removed by the Conservative government last year. This announcement was made as Ms. Reeves outlined Labour’s strategy to stimulate economic growth via the financial services sector. She referred to the sector as one of the UK’s most valuable assets and expressed the party’s commitment to supporting it. This stance marks a significant shift from previous Labour leadership policies and criticisms of the bonus cap removal.
The bonus cap, which limited bonuses to 200% of regular pay, was initially introduced across the EU to discourage excessive risk-taking, which many blamed for the financial crisis. The decision to remove the cap was made by the brief Liz Truss government before financial market instability led to the resignation of her chancellor, Mr Kwarteng, and eventually herself.
Despite criticism from key Labour figures and trade union bodies, Ms. Reeves stated that there were no plans to reintroduce the cap. She emphasized her desire to champion a successful and thriving financial services industry in the UK.
Labour’s new approach includes closer ties with the EU, expanding finance centres outside of London, streamlining regulation, and increasing pension investment in UK companies and green technologies. This strategy is the result of consultations with leading financial figures from Barclays, the London Stock Exchange, Legal & General, Yorkshire Building Society, and the London Stock Exchange Group.
However, some industry insiders have expressed discomfort with Labour’s new direction. Mick McAteer, co-director of the Financial Inclusion Centre and former board member of the Financial Conduct Authority, suggested that Labour may be going too far and forgetting past mistakes that led to the UK’s vulnerability during the 2008 crisis.
The Conservative government has criticized Labour’s financial credibility and its promise to reduce government borrowing as a percentage of national income over the next parliament. Prime Minister Rishi Sunak has singled out Labour’s 2021 pledge to invest £28bn a year in green technologies as being unachievable without higher taxes and borrowing.
