LUXEMBOURG (Nov 21): Britain abandoned a bid to overturn a European Union ban on banker bonuses of more than twice fixed pay after it suffered a setback in the EU’s top court.

Chancellor of the Exchequer George Osborne said he wouldn’t “spend taxpayers’ money” pursuing the legal challenge any further after Britain’s arguments were rebuffed by a senior official at the EU Court of Justice yesterday.

The UK government will instead redirect its efforts toward countering the effects of the “badly designed rules”, which include an increase in bankers’ overall pay, Osborne said in a statement.

The UK Treasury said it may be necessary to “develop standards that ensure that non-bonus or fixed pay is put at risk”, echoing remarks this week by Bank of England Governor Mark Carney.

UK banks face a running battle with regulators over the EU remuneration rules, with Barclays, HSBC Holdings, Lloyds Banking Group and Royal Bank of Scotland Group among more than 30 lenders that have tried to circumvent it by introducing so-called role-based pay.

The four banks declined to comment on the court opinion.

The European Banking Authority, which brings together financial watchdogs from throughout the 28-nation EU, said in October that role-based allowances violate EU rules in “most cases”, and urged regulators to ensure compliance.

Osborne and Carney have criticized the EU bonus curb as counterproductive.

Britain started the legal fight against the measure last year.

EU legislation limiting the ratio of bonuses compared with basic salary is valid because it doesn’t amount to a cap on total pay, Advocate General Niilo Jaeaeskinen of the EU Court of Justice said in his non-binding opinion.

The Luxembourg-based court follows such advice in a majority of cases.

'Here to stay'
“It looks like the bonus cap is here to stay and that could lead to further regulation if basic, non-performance-related salaries rise as a result,” said Paul Randall, head of incentives at law firm Ashurst LLP in London, after yesterday’s court announcement.

The UK argued in the court case that the EU rules exceed the bloc’s powers, are “disproportionate” and give too much responsibility to the EBA to flesh out how the measures should be applied.

The court’s advocate general said that “fixing the ratio of variable remuneration to basic salaries does not equate to a cap on bankers bonuses, or fixing the level of pay, because there is no limit imposed on the basic salaries that the bonuses are pegged against.”

Fixed pay
Osborne wrote to Carney yesterday saying he was “concerned by recent developments that appear to be driving up fixed compensation in the banking industry”.

“I think this issue requires serious examination,” Osborne wrote.

European Parliament lawmakers campaigned for the bonus limit in a bid to rein in the gambling culture blamed for helping trigger the 2008 financial crisis.

It was included in an overhaul of banking standards adopted by the EU in 2013.

Carney indicated this week that the EU rules had shifted the battle against excessive banker pay from curbing bonuses toward taming fixed salaries.

Salaries for senior bankers rose an average of 26 percent in 2012 as banks prepared for bonus caps, the EBA said in a June report, which surveyed 137 banks across the EU.

This signals a “material shift from variable to fixed remuneration,” it said.

Losing streak
The bonus-rule challenge was one of a series of court battles the UK has embarked upon against EU financial rules, and it is on a losing streak.

Britain has failed to overturn EU powers to ban short selling, and was told in April that an early challenge against a financial-transaction tax plan was premature.

The UK is also contesting European Central Bank policies on clearinghouses that it says discriminate against countries outside the euro area.

“The Chancellor revealed his true priorities when he decided a year ago to spend taxpayers’ money fighting a bank bonus cap while working families face a cost-of-living crisis,” Ed Balls, Treasury spokesman for the UK opposition Labour Party, said in a statement.

“He should tell taxpayers how much money he has now wasted on this challenge, which we warned him against.”