Earlier this summer, I found myself on a train near a couple of bankers. As we came into the outskirts of London, one of them spotted the Wembley stadium arch glinting in the distance. Lowering his voice, he said: “The area’s a shithole, though.”
His female companion, who had dealt admirably through the journey with his low-level attempts at flirtation and his boasts about sending his kids to private school, said nothing. Which was perhaps wise, given that the pair of them worked for a bank that had been bailed out from its own excesses in 2008 by taxpayers – including the good people of Wembley.
But it seems that new Chancellor Kwasi Kwarteng is less reticent about the optics of braying bankers and the huge gulf between their gilded lives and the rest of the population. According to the Financial Times, he wants to end Britain’s adherence to the EU-wide cap on banker bonuses (limiting them to no more than 100 per cent of fixed pay) that has been in place since 2014.
Although no final decisions have been made, Kwarteng privately told City chiefs last week “we need to be decisive and do things differently”. The move is aimed at boosting London’s global competitiveness, part of a “Big Bang 2.0” approach to post-Brexit regulation, aides say.
We’ve been here before, of course. When I revealed in June that Boris Johnson’s chief of staff Steve Barclay had urged Rishi Sunak to remove “restrictions on director remuneration” to show overseas firms “the benefits of Brexit”, the backlash was instant. At Prime Minister’s Questions, Keir Starmer contrasted “pay rises for bankers, pay cuts for district nurses”.
The latest revelation prompted Andrew Sentance, former member of the Bank of England’s monetary policy committee, to warn that while there may be some merit in the plan, “it sends a rather confused signal when people are being squeezed in terms of the cost of living and the Government’s trying to encourage pay restraint in the public sector”.
This summer, Jacob Rees-Mogg underlined the Tory party’s competing instincts on the issue. On the one hand, he said the ministers would have to weigh up “whether it is politically insensitive to do it in the midst of a cost of living issue”, adding, “I’m not sure that my friends in the City are finding it too difficult to jog along at the moment.”
On the other, he could see the benefit to the Treasury of higher bonuses: “It is worth pointing out that 45 per cent of any bonus clinks through to the Treasury under our current tax system, so the Government can benefit from these sorts of things too.”
Perhaps the most risky thing about this fresh talk of scrapping the bonus cap is just how desperate it looks as a “benefit of Brexit”. Don’t forget that one of the deep undercurrents that led to Brexit, one harnessed skilfully by both Dominic Cummings and Boris Johnson, was a feeling that the 2008 financial crisis had left the ordinary Briton once more footing the bill for the global elite. The bank bailout cost the taxpayer £137bn, with £1trn in guarantees, and was followed by years of austerity to try to balance the books. Brexit was never about more perks for bankers.
Leave voters may wonder what else they were voting for that has failed to materialise. Many felt they would see lower immigration, but net non-EU migration has more than doubled to 250,000 and they see regular TV footage of Channel crossings. In fact, UK City types want more visas for foreign-born staff, rather than relaxed bonus rules.
Leave voters were also promised lower prices after Brexit. Rees-Mogg claimed in 2019: “We could have cheaper food, clothing and footwear straight away by getting rid of the protectionist anti-trade tariffs that the EU imposes.” In case you missed it, that hasn’t happened.
When he was “Minister for Brexit Opportunities”, Rees-Mogg unveiled a “Benefits of Brexit” paper that was painfully thin on content (just two pages on the impact on financial services). Suspicions that this was a non-job focused more on spin than substance were fuelled further when Truss decided to axe the role in her reshuffle.
Truss’s allies argue that her real gambit is to ensure key figures in her Cabinet become ministers for Brexit opportunities, from Foreign Secretary to Trade Secretary, from Environment Secretary to Levelling Up Secretary, from Business Secretary to Chancellor. Indeed, there’s another policy row coming down the track that could rival the banker bonus move: plans to tear up key bits of the EU working time directive and other workers’ rights, in a bid to make the UK more competitive.
As with bonuses, Sunak spotted the political dangers of this. I’m told that when he was Chancellor, he faced No 10 demands to scrap the directive (which allows most workers a right to a 48-hour week, to rest breaks every six hours at work and paid holidays for 28 days a year).
One source even says Johnson wanted to include the “dump the directive” idea in his speech at the “joint event” he was due to stage with Sunak in July – before the Chancellor quit in protest over Pinchergate and at the Prime Minister’s economic direction.
That plan is now back, with a vengeance, some insiders say. The bonfire of the EU directives may not even need a Commons vote as the rules were adopted into UK law by statutory instrument – and could be ditched when EU regulations expire. Still, it’s not what many working class Leave voters were voting for when they backed Brexit.
When asked about the Truss administration, one Sunak supporter tells me: “It feels like they are doing what they want, without at least one eye on electability of the party in the future”. For other Tories, there is, however, a method in the madness of both the banker bonus and workers rights reforms. The aim is a clear, consistent message that the Tories are the low tax, low regulation, pro-growth party.
The risks of putting clear blue water between their party and Labour are obvious. The Truss philosophy, that growing a bigger economic pie matters more than how the pie is divided up, could repel “Red Wall” former Labour voters and embarrass “Blue Wall”, better off liberal conservative voters (especially with the Lib Dems gearing up for a huge tactical voting push).
But it seems those risks are priced in by Truss and her team. Their calculation is that the public just want a leader who keeps their promises, someone who represents, in Truss’s words, “what you see is what you get”.
Next week, Kwarteng’s mini-Budget will help Truss claim she’s acting swiftly on her pledges to cut taxes and sort the energy bill crisis. If he also brings forward to 2023 plans for a 1p cut in income tax, Labour could be forced onto the defensive itself (having long argued against the National Insurance levy and its impact on ordinary workers).
The wider risk for Truss is that if she fails to get the galloping growth she wants, the sheer size of her energy package and tax cuts could leave her with such huge borrowing that her only way of getting the debt down is years of public spending cuts. And those who delivered the Tory majority of 2019 were voting to repair public services, not wreck them.
On the Tory leadership campaign trail, Truss promised not just a radical Budget later this year but also a new Spending Review. If that review feels in any way like a return to austerity, it would be a bigger gift to Labour than any City bonus. Even those bankers on my train might agree with that.