UK: Lower taxes, more bonuses for bankers

The British government wants to support the economy with a comprehensive package. Finance Minister Kwarteng is not only planning tax cuts – upper limits for banker bonuses are also to be abolished.

The London financial center should become more competitive – and the financial sector the main driver of economic growth. Great Britain wants to remove the cap on banker bonuses.

“We need global banks that create jobs here, invest here and pay taxes here in London, not in Paris, not in Frankfurt and not in New York,” said Finance Minister Kwasi Kwarteng in parliament. The cap on bonus payments only drove up bankers’ basic salaries or pushed business out of Europe.

Upper limit from the EU period

In 2014, the European Union introduced a cap on bonus payments to bankers in order to curb the industry’s excessive willingness to take risks. The bonus must therefore not exceed twice the salary.

The banks are assuming that it will take some time for the bankers to take notice of the abolition of the upper limit. Credit institutions had initially increased salaries to compensate for the limited bonuses.

Up to £200 billion in total

Other parts of Kwarteng’s extensive package are aid to cushion high energy prices and tax cuts. According to economists, the measures could cost a total of up to 200 billion pounds (equivalent to almost 230 billion euros). It is unclear whether the debt will continue to rise as a result or whether the measures will pay for themselves, as the government hopes.

Kwarteng has budgeted £60 billion over the next six months to relieve households and companies from the sharp rise in energy prices. This should freeze energy prices for consumers and not exceed 2500 pounds, i.e. 2860 euros, for an average household for two years. The state finances the estate.

For companies, half of the invoices should be taken over for six months. Energy and electricity prices have skyrocketed since the Russian attack on Ukraine.

Biggest tax cuts in 50 years

Kwarteng’s stated goal is to achieve a growth rate of 2.5 percent in the medium term. That would be tantamount to doubling. Tax incentives should help – the measures are worth £45 billion, according to a government official. According to the Institute for Fiscal Studies, these are the largest tax cuts since 1972.

From April 2023, for example, the top rate of income tax is to fall from 45 to 40 percent. The base rate will be reduced to 19 percent – a year earlier than originally expected. In addition, previously decided increases in social security contributions, corporation tax and alcohol tax are to be reversed.

“Win-win situation for the richest”

The opposition criticized the measures as misguided and primarily aimed at the wealthy. The new prime minister, Liz Truss, of the Conservative Tories herself has acknowledged that her course tends to favor the well-off.

The opposition now accused the government of saying that the benefits would later fall back on the taxpayer. Economists also expressed concerns about a possible excessive level of debt, and the aid organization Oxfam spoke of a “win-win situation for the richest”.