UK government lawyers will today set out objections to European Union caps on bonuses paid to bankers. The curbs have been criticised for putting London’s financial industry at a competitive disadvantage to rival hubs, such as New York and Singapore.

UK government lawyers will today set out objections to European Union caps on bonuses paid to bankers, media reports said. The curbs have been criticised for putting London’s financial industry at a potential competitive disadvantage to rival hubs, such as New York and Singapore.

Under the EU rules introduced in the wake of the 2008 financial crisis, bonuses are limited at 100 per cent of banking salaries, or 200 per cent if there is shareholder consent.

The UK Treasury has objected to curbs because it sees them as an unwarranted use of EU power and that they do not make the financial system more stable.  One side-effect of the rules has been to encourage banks to pay a higher staff salary, which paradoxically makes it harder for banks to cut spending in tougher economic conditions.

A Treasury spokesman said: “Britain has taken a global lead in efforts to tackle unacceptable remuneration practices in the banking sector, which is why we oppose this EU-wide bonus cap, which was rushed through without a proper impact assessment and which could undermine financial stability by leading to higher fixed costs at banks.”

Whether the UK is successful in overturning a bonus cap is another matter; it hasn’t been able to block an EU-wide financial transaction tax, also seen as having a disproportionately heavy impact on London’s financial market.