Bankers' bonuses cap was 'damaging' for UK competitiveness' and had to be scrapped

Bank of England deputy governor Sam Woods says the bankers' bonus cap was "damaging" for the UK economy.

Mr Woods also welcomed the decision to scrap it, saying that major international have recognised this move. He argued that it would be "straightforwardly wrong" to suggest that the Bank's regulatory arm isn't doing much to boost the country's growth and competitiveness.

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Speaking at an annual City event at London's Mansion House, he emphasised that the Prudential Regulation Authority (PRA), where he is also the chief executive, is playing its part in making the UK's financial sector more competitive and less bureaucratic. This comes just days after the Prime Minister pledged to cut red tape to encourage more investment into the country.

Mr Woods referred to last year's decision to remove the cap on bonus payouts for top City bankers, which was previously limited to twice the level of fixed pay. We have always seen this piece of regulation as being completely unnecessary for prudential purposes – in fact actively counterproductive, as it encouraged higher base salaries which were harder to adjust in response to shocks."

He added that it was "clearly damaging for competitiveness" because it made the UK a less attractive place for global firms and harder to bring in top talent from abroad, due to the limits on pay. The decision to scrap the cap was "noticed at the highest level in major international banks across the ", he said.

Mr Woods has indicated that the PRA is considering reducing the deferral period for bonuses from the current eight years for senior managers to five years. Deferrals mean that staff bonuses are paid out in the future rather than immediately and can be clawed back if the business's performance deteriorates.

Additionally, the Bank chief mentioned that the regulator is carefully balancing the management of risk in the financial system with ensuring regulations don't hamper growth. "Beyond anything else, there is plenty of inherited bureaucracy in the regime, which we can usefully ," he commented.

These statements follow closely after the Government's international investment summit, where Sir pledged to overhaul regulations to expedite projects if they bring investment into the UK. Sir Keir emphasised that economic growth and wealth creation are "vital" for the nation's future stability.

There was widespread condemnation when the bonuses were scrapped last year, with especially furious. He said at the time: “This is obscene. are already enjoying bumper bonuses. At a time when millions are struggling to make ends meet, this is an insult to working people.”