In a significant departure from previous positions, the shadow chancellor, Rachel Reeves, announced that the Labour Party will not reinstate the bankers’ bonuses cap that was discarded by the Conservative government last year. Reeves outlined Labour’s plans to boost economic growth, emphasising the importance of the financial services sector, which she described as one of the UK’s greatest assets.
The bonus cap, which limited bankers’ bonuses to 200% of their regular pay, was introduced across the European Union (EU) to curb excessive risk-taking associated with the financial crisis. The decision to abandon the cap was made by the short-lived Liz Truss government, and it was met with criticism from Labour figures and trade unions.
Reeves, a former Bank of England official, clarified that Labour has no intention of reinstating the bonus cap. She stated, “As chancellor of the exchequer, I would want to be a champion of a successful and thriving financial services industry in the UK.”
This announcement marks a notable shift in Labour’s stance, as key figures had previously criticised the removal of the bonus cap. Reeves had criticised “tax cuts” for bankers in the 2021 Budget, and Labour leader Sir Keir Starmer had expressed concerns about the policy, framing it as “pay rises for bankers, pay cuts for district nurses.”
The new plan unveiled by Labour includes a commitment to closer ties with the EU, expanding finance centers outside London, streamlining regulation, and boosting pension investment in UK companies and green technologies. The party’s policies were developed after consultations with leading financial figures from major institutions.
Labour’s stronger support for the financial services sector comes ahead of a major conference for business leaders in London hosted by the party. In recent times, Labour has been actively engaging with the business and finance community, signaling a shift from past policies that advocated nationalisation and criticised City bankers.
While the financial services industry has welcomed Labour’s forward-thinking plan, some within the industry, such as Mick McAteer of the Financial Inclusion Centre, expressed discomfort, suggesting that the party may be going too far. McAteer highlighted concerns about the financial sector’s dominance and the potential risks associated with it.
The Conservative government has consistently questioned Labour’s financial credibility, particularly regarding public finances and borrowing. Prime Minister Rishi Sunak has criticised Labour’s ambitious green technology investment pledge, arguing that it would require higher taxes and borrowing. The upcoming election year sets the stage for intensified scrutiny of economic plans and policy shifts by both major political parties.
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