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Good morning. The Conservative government will scrap the bankers’ bonus cap. No, don’t worry, we haven’t sent an email from last year out by mistake. But the Tory party’s long hangover from the Liz Truss era is one reason why Rishi Sunak’s decision to follow the advice of the UK’s financial regulators and ditch the cap comes with political risks attached. Some more thoughts on all that below.
Inside Politics is edited by Georgina Quach. Follow Stephen on X @stephenkb and please send gossip, thoughts and feedback to insidepolitics@ft.com
Rishi Sunak is being haunted by the spectre of Trussism
The government will abolish a 2014 rule limiting bonuses to twice base pay for employees of banks, building societies and investment companies, as revealed in an FT scoop. It came after a review by the Bank of England’s Prudential Regulation Authority, carried out in the consultation with the Financial Conduct Authority, which recommended removing the measure.
In policy terms, this is all a bit of a no-brainer. The cap was introduced at EU level when the UK was still a member, and as a selling point “come to the UK! A smaller domestic market than the US, with higher fixed costs!” or indeed “come to the UK! All the regulation and higher fixed costs of being inside the EU, without the market access that come with EU membership!” are not messages that scream “the UK is open for business!”
And if you are the government and both your top regulators recommend you do something, you either need to reform your regulators or you should probably do what they suggest.
So, sensible and in that respect a good day’s work for Sunak.
In political terms, of course, it comes with some painful costs. In September last year, then chancellor Kwasi Kwarteng announced the UK would scrap the bonus cap. So it is a measure from Liz Truss’s government and that allows the Labour party to tell a story that has the potential to do real damage to the Conservatives: that Sunak is simply too weak, and his party is sufficiently Trussite that he is essentially a puppet for his predecessor.
I’m less convinced that it comes with the cost of aggravating Sunak’s political vulnerabilities over his wealth. The history of Labour oppositions criticising their Conservative opponents as rich and out-of-touch is long, but so too is the history of Labour staying in opposition. Although I continue to think the Labour party is on course for election victory, I don’t think this line is effective any more. (This is also why I am perplexed as to why Conservative MPs think that referring to Keir Starmer as “Sir Keir Starmer” is a wise strategy. What is it about British electoral outcomes that makes anyone think exposing someone as well-to-do is a winning strategy? Answers on a e-postcard, please.)
Though I would invite you to cast a cynical eye on this quote from Labour’s Darren Jones, the shadow chief secretary to the Treasury, in our story:
Jones said the decision to abolish the cap “at a time when families are struggling with the cost of living and mortgages are rising . . . tells you everything you need to know about the priorities of this out of touch Conservative government”.
Here’s a good rule to remember: when an opposition criticises the timing of or the backdrop to an announcement, it generally means one of two things. The first is “we don’t like this, but we worry the voters we need to win will”. See, for instance, so much of what the Labour party has said about the Conservatives’ scheme to send a proportion of people who come to the UK via small boat to Rwanda.
The second meaning is “well, this seems like something we’ll keep, but it also looks like it is going to be unpopular with the public, and we’d like to be able to clobber you for it while avoiding using any language that suggests we might actually reverse it”. See, for instance, everything that Labour has said about the tax rises Rishi Sunak has overseen, whether as chancellor or prime minister.
There’s a broader point worth observing here, which is that the UK voted to leave the EU essentially to become more European — to have more spending on public services in general and the NHS in particular. That desire for thicker regulation, whether it be on AI safety, cloud gaming or social media, has a lot of popular support. Even pretty open-and-shut “Brexit freedoms” such as getting rid of the bankers’ bonus cap come with some quite sharp electoral risks attached. Squaring that circle is a big headache for all politicians as long as the UK remains outside the EU’s single market and customs union.
Now try this
The marvellous film Past Lives is still in cinemas and very much worth seeing there if you can, but it is now available to stream. I strongly recommend giving it a go — a beautiful film, whose final scenes will stay with me a long time.
