Osborne launches legal challenge to bonus cap
Chancellor objects to the EU, saying curbing bankers' bonuses will 'damage the City'
GEORGE OSBORNE has launched a legal challenge to a new European law that caps bankers' bonuses, risking accusations that he is cosying up to banks.
The Treasury has lodged an objection at the European Court of Justice, arguing that the cap would make the banking sector more risky and lead to lenders finding other ways to get around the restriction.
Despite his continued criticism of the cap, few in the financial world expected Osborne to follow through with his complaint because of the political ramifications, The Times reports.
Shadow Chancellor Ed Balls has already criticised Osborne for "trying to let bankers have more bonuses", when he should be helping to alleviate the "cost of living crisis" of working people.
Simon Chouffot, a spokesman for the Robin Hood Campaign, told The Guardian: "It is beyond belief that George Osborne is battling for bankers' bonuses when he should be fighting for Britain's best interests."
The rule, which is due to come into force next year, will limit bonus payments to one year's base salary, or twice that if there is shareholder approval.
Osborne claims that the cap will damage the City, because it will leave Britain's banks unable to attract the top financial talent. He also said the cap will "push bankers' fixed pay up rather than down, which will make banks themselves riskier rather than safer."
The stipulation that the rule will apply to EU banks working overseas has prompted an outcry from banks such as HSBC and Standard Chartered, where the majority of employees are based in Asia and America, who say they will not be able to compete with their non-European rivals.
The Treasury is challenging the bonus reform on several legal grounds, including its potential contravention of data protection laws and its wrongful application outside the EU.
David Berman, a partner at Macfarlanes, the law firm, said that the cap would create "a real danger of unintended consequences, particularly when banks need to be nimble but would be saddled with high fixed costs". ·