Law Firm

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By Lucy HookerBusiness reporter, BBC News

Bankers can earn unlimited bonuses again from Tuesday, following a change to rules brought in following the financial crisis.

Before 2008 City high-flyers hit the headlines for spending their bonuses on Fast Cars and champagne-fuelled nights.

The TUC warns removing the cap will bring back a " greed is good" culture.

But Uk Finance , The Body representing the sector, says scrapping the cap will make it easier to attract The Best professionals from around The World .

Ruksana Uddin, from City recruitment firm Robert Half said she expects banks to start The Process of bringing back bigger bonuses over The Next few months.

" It will probably be at least a year before Things start filtering through, " She Said . " Bankers going out, spending their money and doing those lavish Things - we probably will not see that until 2025. "

The cap was brought in across the European Union in 2014, limiting bonuses to a maximum of two times a banker's basic salary.

The aim was to make the financial system more stable by reducing the incentive for bankers to take excessive risks. But regulators and banks said it had not had The Intended effect, because firms had switched to paying higher basic salaries to compensate for lower bonuses. Higher basic salaries are harder to reduce during a downturn, or take back if performance has been poor.

Ms Uddin thinks banks will ask their existing staff to switch back to the old system of a lower basic salary plus bonus.

There may be " some pushback" if current staff are reluctant to lose the security of The Higher basic salary, She Said .

But higher bonuses would have a " positive impact" on The Market overall, She Said , drawing in more " superbankers" from overseas.

The TUC, The Umbrella body for the UK's trades unions, described The Move back to bonuses as " obscene".

" City financiers are already raking it in, " said TUC General Secretary , Paul Nowak. " They don't need another leg-up from the Tories. "

A spokesperson for the Treasury said decisions on remuneration in the banking sector were made not by politicians but by The Regulators . The original decision to scrap the cap on bonuses was announced by Kwasi Kwarteng in his September 2022 Budget. His successor Jeremy Hunt subsequently referred the decision to The Regulators , the Prudential Regulation Authority and the Financial Conduct Authority.

Uk Finance , representing the banking industry, said regulators had identified the bonus cap As One factor " limiting labour mobility" in the financial sector, and its removal would make the UK " more attractive to international professionals".

The optics of allowing bankers to be paid bigger bonuses were not good against the backdrop of the cost-of-living crisis, a Uk Finance spokesman conceded. But it was Not Yet clear whether financial institutions would use the opportunity to increase bonuses significantly, He Said .

Anne Sammon a partner at Law Firm Pinsent Masons said she thought " superstar" traders would see higher bonuses fairly quickly. But rules requiring a portion of the bonus to be deferred, and Making It easier to claw back payments in The Event of wrongdoing, meant there may not be quite the same big payday feel to bonus seasons in future, She Said .

In terms of the wider workforce, banks were in for a bit of an " employee relations nightmare" Ms Sammon said.

" People will remember The Days before the bonus cap, when People got five, six times their salary, " She Said , levels that wouldn't be returning without a Big Drop in base salaries, meaning firms would need to engage in some urgent " management expectation".

Offering different remuneration packages for new staff or staff from overseas could store up potential discrimination cases for The Future , She Said .

" The issue is likely to hit when we have bad years and the bonuses are down. It might not be an immediate issue, if we have a really good bonus year. But The Next financial Crash - People are likely to start arguing what is fair and what is not. "

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Source of news: bbc.com