UK Chancellor George Osborne has launched a legal challenge against the European Union
’s cap on bankers’ bonuses (Photo: Reuters)
UK chancellor George Osborne has launched a legal challenge against the European Union's cap on bankers' bonuses in his latest step to protect the financial industry from strict reforms.
The Treasury said the reform went too far and was rushed through without proper assessment over how it would create a significant rise in fixed pay and therefore make banks more risky because it would be more difficult to claw back payouts.
"Regulation of pay in this manner goes beyond what is permitted in the EU treaty," said a Treasury spokesman in a statement.
However, EU financial services chief Michel Barnier hit back and said that the cap was legal and that it was necessary in order to establish and sustain stability to Europe's banking system.
With the UK's legal challenge, Barnier will now have to defend the bonus cap in court.
"Above all, our intention has been to ensure that it is the shareholders who assume their responsibilities and play a determining role when it comes to the remuneration packages for risk-takers in banks," said Barnier in a statement.
Fixed Pay vs Bonuses
The EU Council pushed through the plan earlier this year to cap bankers' bonuses at a maximum of double their salary from 2015.
The measure will come in on 2014's bonuses that will be paid out at the start of 2015.
However, banks are racing to overhaul their remuneration structures by bumping up fixed salaries ahead of EU-imposed rule.
"This EU Council vote in favour of the bonus cap is no surprise and at least the banks have a clear timetable for reforming their bonus structures," said Christopher Mordue, a prominent employment partner at law firm Pinsent Masons.
Labour Slams Osborne
The Labour party, the Opposition, slammed Osborne's stance on fighting against EU bonus caps.
"I think it tells you everything about David Cameron's government that while we hear Labour are saying let's get energy prices down for families, let's help families with childcare, let's get people get back to work, he sends his chancellor George Osborne to Brussels to stand up for bankers and bankers' bonuses," said Shadow Chancellor Ed Balls in a statement.
"I think Osborne should have agreed with us all along to tackle the issue here with a tax on bank bonuses to get young people back to work.
"And you've got to ask, why is Osborne so isolated in Europe that he lost the argument on the EU Council on European action on bank bonuses and he is now trying to fight it in the courts? He should have led on this issue not followed. He should have listened to us."
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