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Labour’s ‘Intensely Relaxed’ Approach to Bankers’ Bonuses Tells Us a Lot About a Starmer Government

The party’s U-turn on the bankers’ bonus cap comes just months after the party campaigned against scrapping it

Labour leader Sir Keir Starmer and shadow chancellor Rachel Reeves during a visit to the London Stock Exchange. Photo: PA Images / Alamy

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“Today – in the midst of their cost of living crisis – the Conservatives are scrapping the cap on bankers’ bonuses”, Labour’s Shadow Chancellor Rachel Reeves complained last October, adding that Sunak’s decision to go ahead with removing the limit on pay “tells you everything you need to know about this Government”.

Yet fast forward just three months and Reeves now appears to agree with the Prime Minister.

Speaking to the BBC, Reeves insisted that she has “no intention” of reinstating the cap, which she suggested would prevent her from being the “champion of a thriving financial services industry”.

In some ways Labour’s latest U-turn is not terribly surprising, coming as it does in the same week that it positions itself as the “new party of business”

Yet if Sunak’s decision to scrap the cap three months ago told us “everything you need to know” about his Government, what does Reeves’ belated support for maintaining that decision say about a potential Labour Government?


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‘Morally Bankrupt’

Attempting to justify the decision on Wednesday, Labour spinners insisted to Byline Times that the Shadow Chancellor had only ever suggested that scrapping the cap should not be “a priority” for the Government.

In other words, Reeves’ opposition to scrapping the cap was not one of principle, but merely of timing.

This is rather misleading. In reality Reeves had instead long portrayed the decision to scrap the cap as a basic issue of fairness.

Responding to Sunak’s decision to push ahead with scrapping it, Reeves told MPs in 2022 that “at a time when he is urging wage constraints for everybody else, how can he remotely claim that that is fair?”

She added that while, “he is asking working people to take the hit… if you are a banker, a non-dom or a private equity manager, do not worry: Scrooge has not cancelled your Christmas.”

Other parts of the party went ever further, with Labour’s leader in Scotland, Anas Sarwar saying that scrapping the cap was not just “economically illiterate” but “morally bankrupt”.

Sarwar stood by his previous description today, telling reporters in Westminster that “I am not going to shift my view on that.”

“I’m not here to defend bankers’ bonuses” he added.

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‘Intensely Relaxed’

Not everyone in the party will have been as unimpressed with the about-turn, however.

Watching on from the House of Commons gallery today, as Sunak mocked Starmer’s U-turn, was the former Labour Business Secretary Peter Mandelson, who once famously suggested that their party should be “intensely relaxed about people getting filthy rich” (as long as they pay their taxes).

For Mandelson, who still advises the Labour leader despite questions over his own associations, Reeves’s comments will likely have been received as a welcome sign of a changed party.

Asked what the U-turn said about a potential Labour government, a spokesperson for Starmer added it showed that the party was now “focused on stability and certainty” for business.

Yet the problem with the party’s newly-relaxed position on filthy rich bankers, is that by always prioritising business “stability” over economic fairness, the party risks boxing itself in should it form the next government.

As both the International Monetary Fund and Institute for Fiscal Studies confirmed this week, the Conservatives’ current spending plans imply big and unsustainable cuts to public spending over the coming years.

In order to avoid the collapse of basic public services that would inevitably follow, an incoming Labour Government would therefore have to either increase borrowing, raise taxes, or both. And with the general public already suffering, the pressure to balance those tax rises on those who can most afford it will be hard for the party to avoid.

Yet by largely ruling out such moves, while insisting that their priority is instead about ensuring that bankers can continue to fill their boots, Labour is risking making the position they will inherit from this Government even trickier than it currently looks.

Opponents of the bankers’ bonus cap point out that it was a mostly symbolic measure. There is little evidence to suggest that the cap actually reduced the total amount of compensation received by senior bankers, nor that it significantly altered their risk-taking behaviour.

But at a time when the rest of the economy is being told to “show restraint” in demanding pay rises, the obscene levels of pay still being banked by the financial services industry, should be hard for any Government, let alone a Labour one, to justify.

Yet by putting winning the support of big business leaders ahead of issues of economic fairness, Reeves and her party are making it clear exactly whose interests they are now prioritising.

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