- By Simon Jack
- Business editor
Image source, Getty Images
The shadow chancellor has told the BBC Labour would not reinstate a bankers’ bonuses cap that was scrapped last year by the Conservative government.
It comes as Ms Reeves set out Labour’s plans to boost economic growth through the financial services sector.
She described the sector as one of the UK’s greatest assets which the party would “unashamedly champion”.
It marks a big change from the policies of the previous leadership and past criticism of the bonus cap removal.
A maximum bonus of 200% of bankers’ regular pay was introduced across the European Union (EU) to deter the excessive risk-taking many blamed for the financial crisis.
The decision to abandon the bonus cap was made by the short-lived Liz Truss government before turmoil on the financial markets forced her chancellor Mr Kwarteng to step down, followed by the prime minister herself.
Rachel Reeves, shadow chancellor and a former Bank of England official, told the BBC that she had no plans to reinstate it despite criticism from key Labour figures and the likes of the umbrella body for the UK’s trade unions at the time.
“The cap on bankers’ bonuses was bought in in the aftermath of the global financial crisis and that was the right thing to do to rebuild the public finances,” she said.
“But that has gone now and we don’t have any intention of bringing that back. And as chancellor of the exchequer, I would want to be a champion of a successful and thriving financial services industry in the UK.”
Around the 2021 Budget, the shadow chancellor had criticised “tax cuts” for bankers “sipping champagne” and said herself that Labour “would not have done [that]”.
Labour leader Sir Keir Starmer also previously criticised the policy and said it amounted to “pay rises for bankers, pay cuts for district nurses” as industrial action took place around pay and working conditions.
The Labour Party has now declared its strongest support to date for the financial services sector.
Ms Reeves said Labour’s policies would also include closer ties with the EU, expanding finance centres outside London, streamlining regulation and boosting pension investment in UK companies and green technologies.
Labour’s new plan is the result of a consultation with leading financial figures including the chairs of Barclays, the London Stock Exchange, Legal & General and the chief executives of Yorkshire Building Society and the London Stock Exchange Group.
The report comes ahead of a major conference for business leaders in London hosted by Labour on Thursday.
Labour has been on a charm offensive with business and finance for some time.
When the government has organised investment summits, like the recent one at Hampton Court Palace, Labour has held shadow events. It recently hosted a business breakfast for the global business elite at the World Economic Forum in Davos, Switzerland, to deliver a message that it is very business friendly.
Many of Labour’s ideas to scrap burdensome regulation are remarkably similar to recent government initiatives to keep up with new emerging technologies and other global financial centres.
But in an election year, it’s atax tax deliberate shift to demonstrate Labour has changed from 2019 when Jeremy Corbyn and John McDonnell supported the nationalisation of some industries and described City bankers as overpaid “speculators”.
Miles Celic, chief executive of financial services body TheCityUK, said: “Labour has set out a forward-thinking plan for financial services with a clear focus on innovation, modernising the regulatory landscape, driving more investment, and unlocking growth in the wider economy.”
However, there are some in the industry who are uncomfortable with the direction Labour is taking.
Mick McAteer, co-director of the Financial Inclusion Centre and a former board member of the Financial Conduct Authority, suggested the party was “going too far”.
“It seems to have forgotten the mistakes of the previous Labour administration which allowed finance to become too dominant, leaving the UK one of the most exposed global economies when the devastating 2008 crisis came.
“Ordinary people and the UK’s public services are still paying the price for that failure,” he said.
“The City finance lobbies are very vocal at promoting the benefits of the sector. The City doesn’t need another champion in Labour,” Mr McAteer added.
The Conservative government has attacked Labour’s financial credibility with the public finances and its pledge to bring down 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.
That pledge has been watered down by shadow business secretary Jonathan Reynolds to “an ambition” and Ms Reeves has said Labour’s spending plans would have to adjust to the situation it would inherit if it wins.
The Conservative Party has dropped heavy hints it will use any spare money in the public kitty to cut taxes – something Ms Reeves has described as a “scorched earth” approach.
