In an inflationary spiral where the Governor of the Bank of England has asked ordinary workers to “think and reflect” before asking for pay rises, the optics on removing the cap on bonuses for highly remunerated bankers couldn’t be worse.

The restrictions introduced under EU rules in 2014 were aimed at avoiding the largess at the heart of the 2008 banking crisis, and state that any bonus amounting to more than one year’s salary must be approved by shareholders. An accompanying hard cap sets the maximum bonus at no more than double annual salary.

City grandees in London have long grumbled that while this keeps the UK on a level peg with other European centres of finance, the bonus cap has allowed the likes of New York and Singapore to get the jump on attracting top talent. Average total compensation for senior bankers in New York, for example, is about 30 per cent higher than in London.

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That’s not to say that the taps in London have been shut off – not by a long stretch. It was reported in February that one bar in the City suffered a “run on champagne” because bankers at the so-called Big Four – HSBC, Barclays, Bank of Scotland owner Lloyds, and Royal Bank of Scotland owner NatWest – were anticipating a £4 billion bonus round this year.

Absolute proof as to whether the cap has succeeded in enforcing pay restraint is ambiguous, but some very senior bankers in the UK have enjoyed increases in basic salary to compensate for the higher bonuses available elsewhere.

Those in favour of removing the bonus cap argue that lower base salaries combined with higher but more volatile performance-based bonuses puts the banking industry’s intrinsic risks more squarely on staff, rather than shareholders. Bonuses go down in times of economic hardship, they say, and are easier to recover than base salaries in the event of employee misconduct.

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Though fiercely opposed by senior figures in the UK, the restrictions on bonuses swept in with wide acclaim following a crisis many blamed on a generation of financiers who came of age in an era when increasingly large bonuses encouraged the excessive risk-taking that triggered the meltdown in the global banking sector. 

Removing the cap was always going to be unpopular with a great many folk, and particularly at a time when plenty are struggling to make ends meet. But the real question is whether now – sitting on the cusp of a new financial crisis – is the right time to inject even more risk into a highly uncertain economic landscape.