Europe-wide cap on payouts may see bankers heading for Far East

The Independent features comment from Mark Littlewood

The City of London could be hit by an exodus of workers to New York, Hong Kong and Singapore, experts have warned, after politicians agreed to cap bankers' bonuses across Europe.

Hedge funds and private equity firms will be excluded from such curbs, although they face restrictions on pay later this year under separate EU laws. A bonus cap in the US is believed to be unlikely. Mark Littlewood, director general at the Institute of Economic Affairs, said: "This is an arbitrary move which will serve only to drive business and talent away from the UK. With a larger financial services sector than other member states, this policy will have a disproportionately damaging effect on the UK economy.

"Aside from undermining the competitiveness of the UK's financial sector, the introduction of caps would be highly dangerous. Increasing the fixed costs of banks would mean they would be unable to reduce their costs when things go wrong.

"Removing the ability to control risk is the worst possible strategy," Mr Littlewood added. "This is yet another example of the European Parliament trying to exercise its muscle without any rationale."

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