By Daniel Hunter
If the provisional EU deal to cap bankers’ bonuses is confirmed, the UK is set to become a ‘zombie country’ which will have handed its position as a world financial centre on a plate to New York, Switzerland or Hong Kong.
That’s the opinion of a City recruiter who has launched a stinging attack on a decision which he calls a vote winner for the public and a disaster for the economy.
While bankers may not be top of the popularity list, according to a report undertaken by PWC for The City of London Corporation the UK financial services sector contributes £27.7 billion in employment taxes — which at almost 12% of government receipts is by far the biggest contributor. And when you include all the other contributions such as corporation tax, the figure rises to around £63 billion — again a massive 12% of total government tax receipts.
Adrian Kinnersley, Managing Director of Twenty Recruitment says that capping bonuses to 100% of basic salaries will have a number of negative effects.
“For one thing, banks will increase base salaries in order to compensate the talent they want to keep — that’s actually bad for the bank as it will stop them keeping their fixed costs low and reduce the flexibility of their overall cost base," he said.
"It will also mean a haemorrhaging of talent out of Europe — people will leave for the higher paid opportunities in the US, Asia and Switzerland. Financial services skill sets are very globally mobile — and are still in high demand. Wage arbitrage is and always has been an effective way to source talent!”
Kinnersley says that it is not just talent that will move on. “Many banks may see this as an unnecessarily invasive move given that they have already taken steps to control compensation levels with long term incentive plans. This will be seen by many organisations as the final regulatory straw and encourage institutions to relocate their headquarters overseas and take talent, tax revenues and income with them. The figures speak for themselves — if we lose that tax revenue and income then our economy is finished.”
“This latest move, combined with the Tobin transaction tax makes running a financial services business in Europe extremely uncompetitive when compared with the US and Asia which have not gone as far.”
The nightmare scenario could be that the UK ends up having to leave Europe says Kinnersley. “If the City haemorrhages talent, institutions, tax income and spending power then we will have to leave as we will never be able to rebalance our economy and grow.”
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