Bank of England deputy governor Sam Woods has said the bankers’ bonus cap was “damaging” for the UK and the move to scrap it has been recognised by major international banks.
Mr Woods also said it would be “straightforwardly wrong” to argue that the Bank’s regulatory arm is not doing much to boost the country’s growth and competitiveness.
The deputy governor for prudential regulation, who is also the chief executive of the Bank’s Prudential Regulation Authority (PRA), was speaking at an annual City event at London’s Mansion House.
He was keen to stress that the PRA is playing its role in making the UK’s financial sector more competitive and less bureaucratic, days after the Prime Minister pledged to slash red tape to encourage more investment into the country.
This included last year’s decision to axe the cap on bonus payouts for top City bankers, which was previously limited to twice the level of fixed pay.
Mr Woods said: “We have always seen this piece of regulation as being completely unnecessary for prudential purposes – in fact actively counterproductive, as it encouraged higher base salaries which were harder to adjust in response to shocks.”
He added that it was “clearly damaging for competitiveness” because it made the UK a less attractive place for global firms and harder to bring in top talent from abroad, due to the limits on pay.
Scrapping the cap was “noticed at the highest level in major international banks across the world”, he said.
Mr Woods also said the PRA is set to propose shortening the deferral period for bonuses from the current eight years for senior managers, to five years.
Deferrals are when bonuses for staff are paid out in future, rather than immediately, and can be cancelled if the performance of the business changes.
Meanwhile, the Bank boss also said the regulator was striking a fine balance between managing risk in the financial system and making sure there are not too many rules that it stifles growth.
“Beyond anything else, there is plenty of inherited bureaucracy in the regime, which we can usefully declutter,” he said.
The remarks come days after the Government held its international investment summit, during which Sir Keir Starmer promised to rip up regulation to get projects off the ground if they put funding into the UK.
Sir Keir said economic growth and wealth creation was “vital” for the future stability of the country.