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UK Chancellor of the Exchequer Kwasi Kwarteng has been reported to be considering removing the cap on bankers' bonuses as "a way of making London a more attractive place for global banks to do business" (BBC).

How is this expected to operate?

Conventional interpretations would be that it would encourage more (or different) activity by existing banks and bankers, or would attract new banks and bankers who are not interested in operating in that capacity in the UK currently.

Has Kwarteng indicated that he believes that bankers are currently not doing what they could, or that the present UK banks and bankers are unsatisfactory and should be replaced or augmented? Or has he given any indication of any other mechanism that would achieve his desired outcome and/or benefit the UK economy?

Edit : Additional references :

Johnson had ruled out the suggestion in June this year, though this article from just before I posted the question suggests Kwarteng is looking "to boost London's post-Brexit competitiveness" while Truss has indicated she believes that existing regulations "hold the City, and its contribution to the entire country, back". This article also mentions "competitiveness".

Since I posted the question the Telegraph mentions support from the Bank of England, and the Guardian has published a more comprehensive discussion (thanks Stuart), which also covers some suggestions how the plan might not work as intended - or, at least, as indicated.

All the articles contain references to what people say they want, but less information on how this would happen. In particular, I've so far been unable to find a reference to anything Kwarteng believes banks should be doing differently, or indications of any banks or bankers that have not been operating in the UK under (and more specifically because of) the current policy of bonus caps.

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    Please indicate the research you have done. Google will find you a lot of relevant articles, e.g. this which you should read before posting here.
    – Stuart F
    Sep 15, 2022 at 20:25
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    @StuartF - More references added - including some since the question was posted. Thanks for the nudge. [Researched further just after the research that told me that other search engines were available...] Sep 16, 2022 at 9:00

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First, practically all global banks already have offices in London. So this is not supposed to lure new banks to come to London but should rather convince them to do more of their business in London.

Suppose for simplicity that the cap would say that no banker can by paid more than 1 million pounds a year. Now if an international bank has some specialist with whom they negotiated a salary of 2 million pounds a year, this guy would not be allowed to work in London at that salary and will instead work in say New York or Hong Kong. The idea of scrapping the cap would be that banks can employ more of their staff in this salary range in London instead of somewhere else in the world.

Now the actual cap is not an absolute salary cap but rather says that the annual boni can be at most twice the annual fixed salary but the idea is the same. The British government hopes that if there are less restriction on how top paid bankers are paid then more of these bankers will move to London. This should boost the economy because they will pay their taxes in the UK and spend some of their income there as well.

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  • I'd been holding off in case anything else came up, but it looks like we're there. Great expression of the arguments likely to come from Kwarteng or Truss, so still a bit abstract. I'm guessing those who believe current capitalist theory will see no question, and those who don't will find little in the way of answers. Thanks. Sep 20, 2022 at 18:07
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    @ItWasLikeThatWhenIGotHere I tried to phrase this in a neutral way. Personally I don't think this is a good idea by the British government but one can still describe why they think it is a good idea.
    – quarague
    Sep 20, 2022 at 18:28

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