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Treasury launches legal challenge to EU bankers' bonus cap

The UK Treasury has launched a legal challenge with the European Court of Justice against EU plans to cap bankers' bonuses.

The EU law plans to cap bonuses to no more than a banker's fixed salary or twice that level with shareholder approval.

The cap, due to come into effect on bonuses awarded from 2014, is designed to address public anger at a bonus-driven culture many European politicians believe encouraged the risk-taking that led to the near collapse of some of the region's biggest banks.

It will apply in all 28 countries within the EU, but also to EU banks operating overseas. The UK is the only country to challenge the proposed legislation.

Fixed pay inflation

The Treasury said the EU cap had been rushed through without any impact assessment and would inflate bankers' fixed pay, making banks riskier rather than more stable. The Treasury is also challenging the legisation on techincal grounds, arguing that Brussels has gone beyond its remit in seeking to regulate bonuses.

Chris Fisher, employment partner at international law firm, Mayer Brown, told HR magazine: "The treasury has said before that it thinks the cap will act counter to the stated objectives of the legislation, which are to ensure banks are safer, more stable and prudentially sound.

"It believes banks will simply increase fixed salaries as a result, which are then harder to reduce or claw back in bad times."

Labour's shadow chancellor Ed Balls said the issue was a long way down his list of priorities.

"It tells you everything about David Cameron's Government," said Balls.

"While we, Labour, are saying let's get energy prices down for families, let's get people back to work, he sends his chancellor to Brussels to stand up for bankers and bankers' bonuses."