The Fallacy of Banker Bonuses

Today, there are rumours that new Chancellor Kwasi Kwarteng, the former Business Minister, will unveil more tax and regulation cuts for big bankers, in order to drive growth. What this means is that the proposed increase on business tax from 19% to 25% will not go through, and bankers’ bonus caps will be scrapped, essentially giving them no limit on how much extra they can take home.

The idea behind this is one that I’ve heard about for years, used to justify cutting taxes. It is all about making cities, and the United Kingdom in general, more appealing for international businesses. With lower taxes and higher incentives, then perhaps Bank X from Country Y might be more interested in setting up an office in the UK. This would mean that they would be paying taxes, lower than before but more than none at all, and they would be employing British people and paying wages back into the economy.

However, obviously, it does not work like that. Studies have consistently shown that tax cuts that were aimed at the rich made no discernable impact on the economy as a whole. Furthermore, they lead to an increase in overall inequality in wage discrepancy. There is no trickle-down boost for workers, nor massive investment back into the economy for us all to witness. And, there is the lost tax revenue from lower rates, that at best means that the plan does not pay for itself, and at worst lowers living conditions for all those too poor to pay, who do not have access to banker bonuses. This is made even worse in the middle of a cost-of-living crisis, with inflation up to the highest its been since the late 1970s

And it’s obvious, right? When you have a group of people with no responsibility over the management of the economy, and you pump them full of money, it should be no surprise that they do not actively boost the economy. It is like blaming an infant for not protecting the house from burglars – they never had the responsibility to do that, and frankly it’s a little strange that you expected them to.

So why is the lie of banker bonuses and trickle-down economics told? It’s simple, really: because conservative and right-wing parties benefit most from banking and big-business lobbying and funding. The UK Conservative Party model is geared towards land-owners and business-owners, who will be much more likely to have shares in banks, or might be bankers themselves. Close allies, former party members, extended family all might be part of the financial world, and the Tories know that if they scratch their back, they’ll get it back. It is more important for them to secure their present and future careers, than it is to make any substantial difference to the lives of their constituents and those worst off.