Shadow chancellor Rachel Reeves has said she has no plans to restore a cap on bankers’ bonuses, as she vowed to “unashamedly champion” Britain’s financial services sector if Labour wins the general election.
Reeves will this week launch Labour’s plan for financial services, promising to cut red tape, embrace artificial intelligence, bolster regional financial centres and promote green finance.
But Labour’s blueprint, drawn up with advice from City grandees, is most notable for what it does not do: Reeves recognises that the sector does not want a big political upheaval after years of post-Brexit change.
“The last thing we need is a massive upheaval,” said one ally of Reeves. “Rachel recognises that stability and security is needed.”
Reeves said that she would not reintroduce the post-financial cap on bankers’ bonuses — set at 200 per cent of regular pay — which was scrapped in 2022 by Liz Truss’s chancellor Kwasi Kwarteng.
“The cap on bankers’ bonuses was bought in in the aftermath of the global financial crisis and that was the right thing to do to rebuild the public finances,” she told the BBC. “But that has gone now and we don’t have any intention of bringing that back.”
The financial services plan, seen by the Financial Times, welcomes some recent Conservative regulatory changes in the City, including chancellor Jeremy Hunt’s Edinburgh Reforms and changes to the Solvency II insurance regime.
Reeves’s argument is that many of them did not go far enough. “Too often in the last decade, British politicians have sounded embarrassed about the sectors we excel in,” she told the FT. “That will change with Labour.”
“The next Labour government will unashamedly champion the UK’s financial services sector,” she added.
Former Labour leader Ed Miliband once branded parts of the City “predators”, while his successor Jeremy Corbyn had a dismal relationship with the Square Mile. Pro-Brexit Tories have also clashed with the City in recent years.
The financial services plan will be launched on Thursday at a Labour business day attended by 400 business leaders, including from companies such as Google, Shell, AstraZeneca, Airbus and Goldman Sachs.
Reeves hopes her financial services plan, drawn up with shadow City minister Tulip Siddiq, will help to cement the bonds between Labour and business.
Nigel Higgins, Barclays chair and one of a number of City figures who advised Labour on its financial services plan, said the party’s report recognised the “importance of international competitiveness”.
However Labour has been criticised by private equity bosses over a plan to close a “carried interest” tax loophole that allows buyout bosses to pay less tax on part of their earnings.
The Labour report includes several proposals, some of which have been announced before, and others that will be subject to consultation:
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A review of City regulation to cut outdated rules and reduce overlap between different watchdogs
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Regulating the buy now, pay later sector and “exploring” the prospects for long-term mortgages
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Endorsing the use of artificial intelligence in the City and becoming a “global standard setter”
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Building a more “collaborative relationship with the EU”, including mutual recognition of professional qualifications
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Empowering the British Business Bank to invest more in growth capital
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Rolling out 350 “banking hubs” to help people have free access to banking services
Advisers on Labour’s plan, acting in a personal capacity, included Sir John Kingman, chair of Legal & General; David Schwimmer, chief executive of the London Stock Exchange Group; and Baroness Shriti Vadera, chair of Prudential.
Charles Randell, former chair of the Financial Conduct Authority, also advised on the plan and said it provided for “stable and proportionate regulation”.
The Tories have argued Labour would be bad for business, targeting in particular the party’s £28bn-a-year spending plan for green investments. The Conservatives claim this would force Labour to increase taxes or break fiscal targets to reduce debt as a proportion of GDP in five years’ time.
Some in the City are also anxious that Reeves, if she becomes Labour chancellor, would target business with higher taxes to raise funds for struggling public services. Labour has said it has no plans to do so.
Prime Minister Rishi Sunak is expected to announce the line-up of his business advisory council for 2024 on Wednesday.
