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 is the opinion of a City recruiter who’s 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. 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.”

Previous post FAST welcomes arrival of Unified Patent Court in London
Next post Clouds, crowds and games improve UK manufacturing