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Osborne backs down over EU bankers' bonus cap

The UK government has withdrawn its legal challenge to EU legislation that caps the level of bankers’ bonuses.

The cap restricts bonuses to 100% of bankers’ pay, or up to 200% with shareholder approval.

Yesterday, European Court of Justice Advocate General Niilo Jääskinen recommended upholding the law and rejecting the claim by the British government that capping bankers’ bonuses is illegal.

Chancellor George Osborne said he was not “going to spend taxpayers' money on a legal challenge now unlikely to succeed”.

“The fact remains these are badly-designed rules that are pushing up bankers’ pay not reducing it," he added. “These rules may be legal but they are entirely self-defeating, so we need to find another way to end rewards for failure in our banks."

In its appeal, the Treasury argued the EU rules would drive up basic pay and move top banking talent out of Europe.

Commenting on Jääskinen’s recommendation, PwC head of UK reward practice Tom Gosling said: “Banks should continue planning on the basis that the bonus cap will still be in force next year.”

Gosling added there “has been too much focus on pay mechanisms and not enough on measuring performance” when it comes to bankers’ pay.

“We need a period of stability on pay structure rules so that banks can focus their time on the important question of how you measure performance and behaviour in a way that enables banks to flourish, but with acceptable risk,” he said.