Cap on bankers' bonuses to be scrapped

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The cap on bankers' bonuses is being removed as part of a post-Brexit shake-up of City rules, it has been confirmed.

The plan was announced by former chancellor Kwasi Kwarteng last year as a way of making London a more attractive place to do business.

It was one of the few mini-budget policies to remain after most were unwound by Mr Kwarteng's successor.

The cap on bonuses will be lifted from 31 October, City regulator said.

Introduced in 2014 when the UK was part of the EU, the cap was designed to curb excessive risk taking in the financial services industry in the wake of the 2008 financial crash.

The cap limited the variable pay of employees of banks, building societies and investment firms to twice their base pay.

But City bosses have long complained about the rules, saying they lead to higher base pay that pushes up banks' fixed costs.

Those costs cannot be adjusted in line with the firm's financial performance, they add, making it to cut costs during a downturn.

But critics have argued that uncapping bonuses will benefit wealthy people at a time when many households are struggling with the cost of living.

There have also been concerns that the move could make the financial system more risky again.

In a joint statement, the Financial Conduct Authority and the Prudential Regulation Authority (PRA) said the bonus cap had "unintended consequences" with firms ending up increasing bankers' fixed pay.

They added that when fixed or base pay accounted for the biggest share of remuneration, employers had less room to vary employee pay due to "material poor performance or misconduct".

An HM Treasury spokesperson said: "Decisions on remuneration in the banking sector are for the PRA as the independent statutory regulator."