UK: Low taxes, high bonuses for bankers

The British government wants to support the economy with a comprehensive package. Finance Minister Kwarteng isn’t just planning tax cuts – the upper limits on banker bonuses are also to be scrapped.

London’s financial center needs to become more competitive – and the financial sector is a key driver of economic growth. Great Britain wants to lift cap on banker bonuses.

“We need global banks, creating jobs here, investing here and paying taxes here in London, not in Paris, not in Frankfurt, not in New York,” Finance Minister Kwasi Kwarteng told parliament. A cap on bonus payments raised bankers’ base salaries or drove business out of Europe.

The highest limit since the EU period

In 2014, the European Union introduced a cap on bonus payments to bankers. So the bonus should not be more than twice the salary.

Banks feel that it will take some time for bankers to notice the cancellation of the maximum limit. Credit institutions initially increased salaries to cover limited bonuses.

A total of up to £200 billion

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

Kwarteng will spend £60 billion over the next six months to relieve homes and businesses of sharp rises in energy prices. This should freeze energy prices for consumers and not exceed 2500 pounds, i.e. 2860 euros, per household for two years on average. The government funds the garden.

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

Biggest tax cut in 50 years

Kwarteng aims to achieve a growth rate of 2.5 percent in the medium term. It is equal to double. According to a government official, tax breaks should help – the measures are worth £45 billion. These are the largest tax cuts since 1972, according to the Institute for Fiscal Studies.

For example, from April 2023, the top rate of income tax will drop from 45 to 40 percent. The base rate will be cut to 19 percent – a year earlier than originally expected. In addition, previously determined increases in social security contributions, corporation tax and alcohol tax will be reversed.

“Win-win situation for the rich”

The opposition criticized the measures as wrong and primarily aimed at the wealthy. Liz Truss, the new Prime Minister of the Conservative Tories, has admitted that her trend favors the well-off.

The opposition has now accused the government of saying its benefits would later trickle back to taxpayers. Economists also expressed concerns about high levels of debt, and aid organization Oxfam spoke of a “win-win situation for the rich”.