London set for influx of bankers from New York and Edinburgh

City of London Bankers Kwasi Kwarteng
City of London Bankers Kwasi Kwarteng

Scottish fund managers and bankers from New York are set to move to England in droves as Liz Truss’s mini-Budget makes London a more attractive place to do business.

The end of the European Union-era bonus cap means the UK is more competitive again on the global stage, while England’s top rate of income tax is coming down from 45pc to 40pc, well below Scotland’s 46pc.

Finance sources said the change of tone from Kwasi Kwarteng, the Chancellor, signals Britain is becoming a more open market again after years of acrimony between Westminster and the City in the wake of the financial crisis and Brexit.

Meanwhile the tax disparity has sparked consternation in Scotland about the effect on Edinburgh, the major financial centre north of the border.

Benny Higgins, a Scottish banker and former business adviser to Nicola Sturgeon, said: “A 1p gap may be seen by me and my peers as tolerable and understandable, but a 6p gap would be different.

“The effect on high earners means jeopardy for the Scottish business community. The Scottish government doesn’t have to close the gap completely but should do something to reduce it.”

Peter Hewitt, a fund manager at Columbia Threadneedle who lives in Edinburgh, said: “I won’t be moving but if I were 20 years younger I would think about it.

“Berwick on Tweed in England is 45 minutes by train – it’s like commuting into London from Sevenoaks. This will cause problems for employers.”

Another Scottish fund manager said he had discussed the implications with his wife, adding: “You need a reason to base yourself outside the London hub. The lifestyle may be better here in Edinburgh, but the money in your pocket matters too and the gap is widening. If there is no reaction from Nicola Sturgeon the signal is ‘we couldn’t care less if you do move’.”

The bonus cap has also sparked immediate interest in the US. While bankers currently working in London are unlikely to experience major changes to their pay packets, investment banks are expecting to shift more staff to Britain after the bonus cap was axed.

One American banking source said: “This makes things more flexible for banks, it removes a barrier to people considering moving here from other locations.

“Everyone is happy the Government is thinking about financial services again – this was completely absent from previous administrations post-Brexit.”

Brussels’ cap forced banks to push up executives’ salaries to compensate for the lack of bonus, effectively locking in large extra costs for the institutions and reducing their ability to cut pay in a downturn.

It also limited lenders’ room to cancel or claw back rewards from an individual who performed poorly or misbehaved – a key benefit of the bonus system, and a reason the Bank of England has long opposed the cap.

Another financial insider said scrapping the cap will encourage American banks to send staff from their New York offices to Britain.

They said: “Instead of bringing someone to London and whacking up their salary, they can maintain a lower base salary and pay the rest through bonuses. It is better performance-related, and helps manage their fixed costs far better.”

Industry groups also welcomed the move.

Miles Celic, chief executive of The City UK, said the change shows Britain is open for business.

He said: “With the bonus cap and tax [policy] more generally, it is about sending a message of the UK being open for business and ambitious.

“The bonus cap was a policy which previous Governments felt didn’t achieve a lot of things it set out to do. There are other things you can do if you are trying to underpin standards and behaviours – clawback provisions I would argue are a more effective way of doing this.”

The supportive tone is a marked contrast with how some economists have interpreted Mr Kwarteng's plans for £45bn of tax cuts.

The pound fell sharply after his announcement on Friday. On Saturday, the economist Nouriel Roubini – who predicted the financial crisis and has been dubbed “Dr Doom” – said ther uncosted cuts have left Britain on course for a bailout by the International Monetary Fund.