Question to the HM Treasury:

To ask Mr Chancellor of the Exchequer, pursuant to the Answer of 14 October 2016 to Question 46911, what evidence base his Department used to inform the conclusion that cash bonuses have reduced significantly.

Before the crisis there was no regulation of variable remuneration however it is widely acknowledged that variable remuneration was largely paid out in cash, The Bank of England, stated as such in their 2015 Q4 quarterly bulletin, “Aligning reward with risk in the financial sector”.

Since the crisis, and the regulatory efforts that followed, the variable remuneration of material risk takers now has to comprise 50% cash and 50% non-cash which has led to a resulting reduction in the cash element. HMT analysis of tax receipts confirms a reduction in cash bonuses. Firms are also required to defer a greater portion of their bonus for a longer period of time, resulting in a fall in the value of bonus that is paid in any given year.

More widely, the legislative impact has shifted the balance in remuneration packages towards higher levels of fixed pay, reducing the amount paid in variable remuneration across the sector, with a commensurate impact on cash bonuses. For example, Pillar 3 disclosures revealed that fixed pay as a percentage of total remuneration at the UKs five largest banks rose from 28% to 54% between 2013 and 2014 following implementation of the bonus cap.