Bank of England boss tells banks to use ‘restraint’ on bonuses

Bank of England boss Andrew Bailey has called on banks to use restraint on bonuses to help keep inflation down as he warned the “least well off” will be hit hardest by the cost-of-living crisis.

The governor told MPs on the Treasury Select Committee that banks should “reflect on the economic situation we’re in” when setting bonuses and pay rises.

It came as Barclays revealed it handed out £1.9 billion in bonuses for 2021, up from £1.6 billion in 2020, following similar payouts from rivals such as HSBC.

Mr Bailey sought to defend controversial comments he made earlier this month urging workers not to ask for big pay rises to counter soaring inflation, saying that companies also need to think twice about raising prices significantly to help cool inflation pressures.

Mr Bailey faced criticisms from trade unions, given his £575,538 pay package, as they said many workers deserved pay rises.

Dame Angela Eagle MP, on the Treasury Committee, called on Mr Bailey to visit a care home, with workers in the sector being paid £9.01 an hour on average.

She asked what his view was on bank bonuses, adding: “We’re in the middle of a huge bonanza for banker bonus payouts.”

He said: “The same point holds about restraint for everybody.”

In a message to banks, he said: “Please reflect on the situation that we’re in.”

On executive pay and bonuses more widely in the UK, he added: “When you’re thinking about it, please reflect on the economic situation we’re in with this very big economic shock coming in from outside.

“My big concern is that the least well off will come off worse in this process if we don’t have some process of thought and restraint.”

The Bank hiked interest rates to 0.5% in early February, after a rise to 0.25% at its previous meeting in December, as it warned that inflation will peak at 7.25% in April – its highest level since August 1991.

Further rises are expected at its March and May meetings to rein inflation in.

Energy and fuel price hikes are largely behind the eye-watering inflation increase, but Mr Bailey and fellow rate setters are concerned over so-called second round effects and that inflation will be pushed higher if the UK becomes trapped in a wage price spiral and if firms put up prices to offset cost pressures.

When questioned over the apparent insensitivity of his recent comments on worker wage restraint, Mr Bailey said: “I’m not saying people should not take pay rises. It was in the context of large pay rises.

“If everybody tries to get ahead of the shock that we’ve had from outside, we’ll get the second round effects and it will get worse, that’s the problem.”

He said the level of bank bonuses unveiled in recent days “illustrates that the impact of this will fall unequally”.

He added: “It’s not my role as governor of the Bank of England to dictate the outcomes, but I’m going to use my position to say we need to be very clear that those things can follow.”