Downing Street has asked ministers to ease restrictions on City bosses’ pay in a bid to show overseas companies the “benefits of Brexit”, in can reveal.
Steve Barclay, the Prime Minister’s chief of staff, wrote to Chancellor Rishi Sunak with a plan for “deregulatory measures to reduce the overall burden on business” and attract more firms to the UK.
One key plank of the plan included “removing restrictions on director (and specifically NED [non-executive director]) remuneration as suggested by the London Stock Exchange Group to improve London’s attractiveness for listings ”.
But with the cost of living crisis and a squeeze on earnings hitting millions of ordinary workers, the proposal may spark controversy.
It followed intense talks between the PM’s Minister for Policy Andrew Griffith, the No 10 Policy Unit, Business Secretary Kwasi Kwarteng and Minister for Brexit Opportunities Jacob Rees-Mogg.
A copy of the confidential letter from Cabinet Office Minister Mr Barclay to the Chancellor has been seen by in. It says: “I trust you’ll agree this is a more proportionate regulatory response and reflective of the new approach to regulation outlined in the ‘Benefits of Brexit’ publication in January.”
The letter, written following a cross-Whitehall “write-round” consultation conducted by the Department of Business, Energy and Industrial Strategy [BEIS] on audit and corporate governance, made clear it was “setting out the terms” for wider reform.
It states that “as part of this announcement, I request that the Secretary of State [for Business, Mr Kwarteng] outlines further deregulatory measures to reduce the overall burden on business ”, and then refers explicitly to the need to change curbs on bosses’ pay.
Current rules on corporate pay stem from the UK’s previous membership of the European Union, many of which were imposed after the 2008 financial crisis.
It is understood that among the changes being considered by BEIS is amending the UK corporate governance code to allow non-executive directors – outsiders who oversee pay packages – to own more shares in that company.
Backers of the idea say that it would allow independent directors to show they are “fully invested” in the success of the firm, but critics warn it would create possible conflicts of interest.
The current EU rules also include a cap on bonus pay, set at no more than 100 per cent of fixed pay or double that with explicit shareholder approval.
The rules also include “clawback” arrangements in case a firm finds reason to recall any salary, and the power of shareholders to know the details of and approve directors’ pay packages.
The Government announced on May 31 that there were “risks in prescribing a one-size-fits-all approach for every remuneration committee to follow”. Such committees should be allowed to design and enforce their clawback policies “so that they can be tailored to a company’s specific circumstances.”
Some City firms have called for the EU bonus cap rules to be ditched as they fear losing out to financial centers like New York. Last year Mr Sunak resisted such pressure, but the Prime Minister has long been a critic, ever since he lobbied against the original rules when he was Mayor of London.
Back in 2012, Mr Johnson said that the bonus cap was “deluded” and “self-defeating” because it would run business to financial centers outside the EU.
“This is possibly the most deluded measure to come from Europe since Diocletian tried to fix the price of groceries across the Roman Empire,” the then Mayor said.
Mr Barclay’s letter, dated May 9, was addressed to the Chancellor as the chair of the Cabinet’s Domestic and Economy Implementation sub-committee.
Outrage over banker’s pay
Public outrage over bankers’ pay followed complaints that the financial crisis was caused in part by payments that encouraged financiers to take massive risks with their own firms and with the global economy.
However, in recent months banker bonuses have soared to levels last seen during the 2008 crisis.
Bonuses in the financial and insurance sector grew by 27.9 per cent over the last year, while average wages in the same period grew by just 4.2 per cent. Some £ 6bn was paid out in City bonuses in March alone.
Last week, the Office for National Statistics revealed that average regular pay fell by 2.2 per cent, the biggest drop in a decade.
A spokesperson for BEIS said that it was looking to strengthen the rules on clawing back bonuses from directors if their company collapses, to stamp out “rewards for failure”.
However, it was also “exploring whether there are any unnecessary restrictions on paying non-executive directors in shares, which could ensure they are fully invested in the success of the company they run”. The spokesperson added: “If the company does well, directors do well.”
The Treasury and Cabinet Office refused to comment, claiming that BEIS was the lead department on the issue. The London Stock Exchange also refused to comment.
Baroness Smith, Labor’s leader in the House of Lords, seized on the Barclay letter during a Government statement on the rail strikes.
Ministers were “telling those who are working that you must have wage restraint”, she said. “Does it not seem hypocritical to be saying to the City that those curbs that have been in place are being removed?”
“It comes back to [this]: the Government seems to think the rules are for other people, and not for them and their friends, ”she said.
Shadow Business Secretary Jonathan Reynolds added: “It’s the hallmark of a Government that lurches from crisis to crisis that instead of giving businesses real certainty, they’re looking down the sofa for random ideas.
“If this is what an audit review of four years, three consultations and thousands of pounds of taxpayers money has given us, it’s clear the Tories are incapable of governing.”