Bankers’ bonuses could be banned in Britain in order to tackle high levels of inequality across the country, John McDonnell has said.
The shadow chancellor warned the City of London that a culture of excessive bonus payouts remained a decade on from the financial crisis and said Labour would introduce rules to curtail such awards – including a potential ban – if banks did not take voluntary action first.
“If it continues and the City hasn’t learnt its lesson, we will take action, I’ll give them that warning now,” he told the Financial Times. “If we have to take action, we will. People are offended by bonuses.”
Saying that a crackdown on big bonuses would be among his first acts as chancellor, McDonnell said he would weigh up a range of options to limit them. A source close to the shadow chancellor confirmed to the Guardian that an outright ban would be considered.
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According to figures released by the European Banking Authority this year, more than 3,500 bankers in the UK were paid more than €1m (£900,000) in 2017, with total income of almost €10bn between them. Their average pay was €2m.
The finance and insurance industry as a whole pays out the highest level of bonuses of any sector in the British economy, increasing the total value of payouts by 9.7% to £15bn over the year to March 2017, according to the Office for National Statistics. Although rising. this is still below the 2008 peak of £18.4bn.
McDonnell’s warning comes as Labour is gearing up for a potential election showdown with Boris Johnson, as the prime minister argues that his party is ending austerity. Johnson has previously branded himself among the biggest defenders of the City, saying he was a champion of financial services during his time as London mayor.
The shadow chancellor said a big bonus culture still pervaded the British banking industry a decade on from the 2008 crash, telling the FT: “It’s become part of the culture and it is so separate and distinct and isolated from the rest of the real-world economy and that’s why people are so offended by it. It’s a reflection of the grotesque levels of inequality that people now find so offensive.”
Pay in Britain is rising faster than average for people earning at least £1m, a trend that stands to widen inequality.
Earlier this year, the director of the Institute for Fiscal Studies thinktank suggested the return of bumper banking industry payouts unseen since the financial crisis could be fuelling the trend.
McDonnell also said he wanted to ban all share options as well as golden goodbyes, which compensate axed bankers, and golden handshakes, which are designed to lure them to new jobs.
City regulators already take a dim view of such payouts, stipulating that they should be extremely rare.
Earlier this year, the Spanish bank Santander ran into trouble with Andrea Orcel, the investment banker it had lined up to become its chief executive. Orcel sued the bank for €100m after it withdrew its job offer, claiming it could not justify paying him a €50m signing-on fee.
A City lobby group warned that McDonnell’s proposals could threaten investment in the financial services sector.
Miles Celic, the CEO at TheCityUK, said: “British-based companies are among the world leaders in financial services. They invest in companies of all sizes and help people save, buy homes and have comfortable retirements. Any government should look to preserve and promote the jobs, prosperity and opportunity this British success story provides.”