AFP

Britain on Friday axed a cap on bankers’ bonuses aimed at boosting London’s finance sector after Brexit, raising anger amid a cost-of-living crisis.

Finance minister Kwasi Kwarteng removed an EU-inherited policy that limits bankers’ bonuses at twice the basic salary. 

But the move, along with the scrapping of the top income tax bracket, triggered stinging criticism from opposition parties and unions.

New British Prime Minister Liz Truss, whose finance chief also outlined a costly freeze on energy bills to help households and business, said removing the bonus cap would stimulate economic growth and jobs.

Kwarteng followed up by stating that Britain needed “global banks to… invest jobs here and pay taxes here in London — not in Paris, not in Frankfurt and not in New York”. 

“All the bonus cap did was to push up the basic salaries of bankers or drive activity outside Europe,” the chancellor of the exchequer told parliament in a mini budget on Friday.

“It never capped total remuneration… so as a consequence of this we are going to get rid of it.”

A strong UK economy “has always depended on a strong financial services sector”, Kwarteng insisted. 

Britain’s cap had been in place since 2014, a legacy of membership of the European Union that Britain exited last year.

Brussels introduced the cap across the bloc following the global financial crisis, when banks received enormous state bailouts.

In another boost to high-earners on Friday, Kwarteng removed the 45-percent top rate of income tax levied on earnings above £150,000 ($169,000).

A new top rate of 40 percent would be applied to all annual salaries above £50,000.

– ‘Already wealthy’ –

Opposition politicians slammed the budget as boosting the rich, although income tax was cut slightly for all earners.

“It is all based on an outdated ideology that says if we simply reward those who are already wealthy, the whole of society will benefit,” said Rachel Reeves, finance spokeswoman for the main opposition Labour party.

Conservative party MP Kwarteng said his measures would bolster growth, as economists warn that Britain was likely already in recession.

“High tax rates damage Britain’s competitiveness,” warned Kwarteng, adding they “reduce the incentive to work, invest, and start a business”.

He also scrapped a planned tax rise on company profits.

Britain had planned to ramp up corporation tax to 25 percent from 2023.

Instead, it will remain at 19 percent — the lowest in the G20.

– Firestorm –

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said the chancellor had sparked a “firestorm” over the tax measures.

“Kwasi Kwarteng has set off fireworks with this budget, while sparking a firestorm of criticism about benefiting the wealthy much more than the poorer sections of society,” she noted.

“Scrapping the top rate of tax will return many thousands of pounds to high earners, while lifting the cap on bankers’ bonuses is likely to be hard to swallow for low paid workers.”

When Ron Gilbert and Dave Grossman first let loose their swords, voodoo and pirates epic “The Secret of Monkey Island”, it was sold on floppy disks and released for long-forgotten home PCs like the Amiga.

Three decades later, they are back at it with “Return to Monkey Island”, a sequel with flashier graphics and orchestral scores that is only available as a download.

“Back in 1990 we had an office and we were all in there all day long sharing space,” Grossman told AFP in a joint interview with Gilbert.

“Now we’re all remote — and not even just because of the pandemic, we’re going to be remote anyway.”

The two men worked together on the first two editions of the game, released in 1990 and 1991, before the group disbanded and went their separate ways.

The second edition ended on a cliffhanger that has never been resolved, with the hero, Guybrush Threepwood, facing off against his nemesis LeChuck.

And the secret alluded to in the title of the original was never divulged.

It has kept fans on tenterhooks ever since and gave Gilbert and Grossman a reason to come back to the franchise 30 years later.

“I think there’s unfinished business for Guybrush because he never found the secret, and I think there’s unfinished business for Dave and I as well,” said Gilbert.

– ‘Coloured by nostalgia’ –

The fan fervour around last Monday’s release showed just how strong the feelings still were for a game with blocky graphics and text prompts.

Although most of the reaction was positive, some took exception to the cartoon aesthetic of the new game and vented on social media — something 1990s creators did not have to contend with.

“Adventure game fans have always been very nice and I felt like they kind of turned a little bit,” said Gilbert. 

“It does affect you on some level but it’s not going to change how we think about the game at all.”

Slick graphics were never the appeal of “Monkey Island” — instead players solved puzzles and riddles and advanced through strange landscapes with surreal humour and pop-culture nods aplenty.

It largely set the template for adventure games that were to follow, but the “Monkey Island” franchise petered out with a few later entries published without the involvement of Gilbert.

Although the pair are polite about these subsequent editions — “we would never pooh-pooh the canon”, said Gilbert — their new game picks up the story where the 1991 game ended.

But before they could even start thinking of the story, they had to negotiate licensing the rights to the game from Disney.

“It was a long process, just because lawyers get involved and then everything takes a long time,” said Gilbert.

A core team of 25 people then spent two years beavering away on the game, dealing not only with the rigours of game design but also 30 years of expectation among fans.

“Their memories are unrealistically coloured by nostalgia,” said Grossman. “That makes a sort of an unreachable goal for us.”

Instead, they decided to make a game that they themselves would enjoy.

– ‘Golden age’ –

Despite beginning their careers when the gaming industry was still in its infancy, Gilbert and Grossman are still hugely inspired by the current landscape.

“Nearly anyone can just get three friends together and make a game in their garage, go on the internet and find an audience for it,” said Grossman, calling it “the golden age of video games”.

Their original 1990s games have already found a second life in this golden age through apps and online emulators.

And both creators are quietly confident that “Monkey Island” will continue in some form in the future.

“I think we should do one of these about every 10 or 15 years,” said Grossman.

“Yeah, see you in 2035,” replied Gilbert.

Stock markets tumbled, the pound crashed against the dollar and oil prices slumped Friday on growing recession fears after central banks this week ramped up interest rates to fight decades-high inflation.

With price rises showing no solid sign of letting up, monetary policymakers have been forced to go on the offensive, warning that short-term hits to economies are less painful than the long-term effects of not acting.

The Federal Reserve’s decision Wednesday to lift borrowing costs by 0.75 percentage points for a third successive meeting was followed by a warning that more big rises were in the pipeline and that rates would likely come down only in 2024.

That came along with similar moves by banks in several other countries including Britain, Sweden, Norway, Switzerland, the Philippines and Indonesia — all pointing to a dark outlook for markets.

“We see this new even-higher-for-longer rate path as associated with a substantially higher likelihood of a hard landing, and so not just unambiguously hawkish but unambiguously bad for risk,” said Krishna Guha, vice-chair of Evercore ISI.

In a sign that recession expectations are rising, the 10-year US Treasury yield jumped to 3.7 percent, its highest level in a decade, while on Wall Street the S&P 500 has sunk to its weakest level since June and just above its 2022 lows.

The UK 10-year yield struck at an 11-year high at 3.84 percent Friday.

The pound slumped to $1.1021, the lowest level since 1985, even as the UK government unveiled a tax-cutting budget aimed at driving growth.

In the eurozone, recession fears deepened as data showed its economic activity fell once again in September.

The S&P eurozone PMI dropped to 48.2 in September — with a score under 50 representing economic contraction.

“A eurozone recession is on the cards as companies report worsening business conditions and intensifying price pressures linked to soaring energy costs,” said Chris Williamson, chief business economist at S&P Global Market Intelligence. 

He added that falling UK business activity this month indicates that the British economy is likely already in recession.

Traders were keeping a close eye also on developments following the Japanese finance ministry’s intervention to support the yen, after it hit a new 24-year low of 146 against the dollar.

The first such intervention since 1998 helped strengthen the yen to just above 140.

But analysts warned the move was unlikely to have much long-term impact and the yen remained vulnerable owing to the Bank of Japan’s refusal to tighten policy — citing a need to boost the economy.

Recession fears also caused oil prices to fall by more than three percent.

– Key figures at around 1115 GMT –

London – FTSE 100: DOWN 2.4 percent at 6,984.85 points

Frankfurt – DAX: DOWN 2.6 percent at 12,201.91

Paris – CAC 40: DOWN 2.4 percent at 5,777.00

EURO STOXX 50: DOWN 2.6 percent at 3,337.10

Hong Kong – Hang Seng Index: DOWN 1.2 percent at 17,933.27 (close)

Shanghai – Composite: DOWN 0.7 percent at 3,088.77 (close)

Tokyo – Nikkei 225: Closed for a holiday

New York – Dow: DOWN 0.4 percent at 30,076.68 (close)

Pound/dollar: DOWN at $1.1059 from $1.1252 Thursday

Euro/dollar: DOWN at $0.9760 from $0.9839

Euro/pound: UP at 88.27 pence from 87.40 pence 

Dollar/yen: UP at 142.90 yen from 142.35 yen

West Texas Intermediate: DOWN 3.4 percent at $80.68 per barrel

Brent North Sea crude: DOWN 3.2 percent at $87.56 per barrel

burs-bcp/rfj/lth

The UK’s new government on Friday unveiled a multi-billion-pound package to support households and businesses hit by the highest inflation in decades, cutting taxes as the nation heads for recession.

Finance minister Kwasi Kwarteng, fresh from being appointed by new Prime Minister Liz Truss, said caps on soaring energy bills would cost about £60 billion ($68 billion) in the first six months. 

“The PM has acted with great speed to announce one of the most significant interventions the British state has ever made,” Kwarteng told parliament in a so-called mini budget.

“People need to know that help is coming.”

In a controversial move as millions of Britons face a cost-of-living crisis, Kwarteng axed an EU-inherited cap on bankers’ bonuses following Brexit to bolster the financial services sector.

He brought forward a plan to cut the lowest rate of income tax and reduced the highest to 40 percent from 45.

The chancellor of the exchequer also reversed a planned increase in tax on company profits signed off by Truss’s predecessor Boris Johnson.

Kwarteng already on Thursday said he would scrap a tax on salaries, reversing a 1.25-percentage-point rise in National Insurance implemented by his predecessor Rishi Sunak.

It comes as the Bank of England warns that Britain is slipping into recession, as rocketing fuel and food prices take their toll.

Adding to the pain, the pound has fallen against the dollar, sinking to a fresh 37-year low under $1.12 ahead of Kwarteng’s announcement.

Kwarteng also lifted the point at which tax is levied on purchases of residential properties, as soaring interest rates put the brakes on the housing market.

– Capping energy bills –

Britain on Wednesday announced a six-month plan to pay about half of energy bills for businesses.

Truss had already launched a two-year household energy price freeze. The caps will not kick in, however, until Britons face another large hike in gas and electricity bills from October.

The average household will have their annual energy bill capped at £2,500 until 2024 but many are expected to spend above that to keep homes warm over the winter.

Wholesale electricity and gas prices for firms — as well as charities, hospitals and schools — will be capped at half the expected cost on the open market.

UK energy companies including BP and Shell will not benefit from the cap, as they enjoy soaring profits after the invasion of Ukraine by major oil and gas producer Russia.

Britain’s main opposition Labour party has demanded that the government extends a windfall tax on energy companies launched by Sunak earlier this year.

But Truss ruled out such a move, arguing that additional taxes hinder economic recovery and efforts by energy groups to transition into greener companies.

She took office on September 6, two days before the death of Queen Elizabeth II, after winning an election of Conservative party members on a tax-cutting platform.

Kwarteng on Friday confirmed plans to shake up the welfare system.

Some 120,000 people in part-time work would face a benefit cut should they fail to take new steps to look for more work.

Kwarteng had described the policy as a “win-win”, pitching it as a way to fill 1.2 million UK job vacancies.

– Strikes, rate rises –

With prices rocketing, wage values are eroding, triggering some of the biggest strike action Britain has seen in more than 30 years. 

From the rail sector to postal services and even lawyers, tens of thousands of workers are carrying out industrial action aimed at securing bigger salaries.

“At such a critical time for our economy, it is simply unacceptable that strike action is disrupting so many lives,” Kwarteng told MPs.

He said the government would legislate “to ensure strikes can only be called once negotiations have genuinely broken down”.

Surging interest rates aimed at cooling sky-high inflation are meanwhile hurting consumers and businesses, as well as pushing up the cost of government borrowing.

The Bank of England on Thursday ramped up its key rate by another half-point to 2.25 percent, and warned the UK would slide into recession in the current third quarter.

Asian markets fell again Friday and the dollar extended gains as part of a global sell-off fuelled by recession fears after central banks around the world ramped up interest rates to fight decades-high inflation.

With price rises showing no solid sign of letting up, monetary policymakers have been forced to go on the offensive, warning that short-term hits to economies are less painful than the long-term effects of not acting.

The Federal Reserve’s decision Wednesday to lift borrowing costs 75 basis points for a third successive meeting was followed by a warning that more were in the pipeline and they would not likely come down until 2024.

That came along with similar moves by banks in several other countries including Britain, Sweden, Norway, Switzerland, the Philippines and Indonesia — all pointing to a dark outlook for equities.

“We see this new even-higher-for-longer rate path as associated with a substantially higher likelihood of a hard landing, and so not just unambiguously hawkish but unambiguously bad for risk,” Krishna Guha, vice-chair of Evercore ISI, said.

In a sign that recession expectations are rising, the 10-year US Treasury yield jumped to 3.7 percent, its highest level in a decade, while the S&P 500 sank to its weakest level since June and just above its 2022 lows.

There were also losses on the Nasdaq and Dow, while London, Paris and Frankfurt shed more than one percent apiece.

Asia followed suit.

Hong Kong dropped, even as the city’s government lifted long-running hotel quarantine rules for incoming travellers as officials look to kickstart the battered economy. 

Shanghai, Sydney, Mumbai, Bangkok, Seoul, Singapore, Wellington, Taipei and Manila also retreated.

London, Paris and Frankfurt all fell in the morning.

The dollar, which has surged to multi-decade highs against its major peers as well as emerging currencies, held its strength.

Traders are keeping a close eye on developments following the Japanese finance ministry’s intervention to support the yen, after it hit a new 24-year low of 146 against the dollar.

The first such intervention since 1998, it helped strengthen the yen to just above 140.

But analysts warned the move was unlikely to have much long-term impact and the yen remained vulnerable owing to the Bank of Japan’s refusal to tighten policy — citing a need to boost the economy — as the Fed ramps up rates.

“Given the now even starker contrast between the (central bank’s) policy stance and central banks everywhere else in the world… (the) MoF will need to be in this intervention game for the long haul and in size if it is to have much hope of arresting yen weakness in an ongoing strong dollar environment,” said National Australia Bank’s Ray Attrill.

The pound also fell to a new 37-year low of $1.1170, even after the Bank of England hiked interest rates by half a point.

Oil markets remain subdued by concerns about a hit to demand caused by the expected recession.

Both main contracts dipped even as speculation swirled that OPEC and other major producers could cut output as they fear prices are falling too fast.

The commodity has fallen about a third from highs seen soon after Russia’s February invasion of Ukraine, and is even below levels seen before the conflict.

“This is going to be a very, very volatile last quarter,” said Amrita Sen, of Energy Aspects, on Bloomberg Television. She added that there were “just too many different and contradictory factors driving prices right now”.

– Key figures at around 0810 GMT –

Hong Kong – Hang Seng Index: DOWN 1.2 percent at 17,933.27 (close)

Shanghai – Composite: DOWN 0.7 percent at 3,088.77 (close)

London – FTSE 100: DOWN 0.4 percent at 7,130.11

Tokyo – Nikkei 225: Closed for a holiday

Dollar/yen: DOWN at 142.27 yen from 142.35 yen Thursday

Pound/dollar: DOWN at $1.1178 from $1.1252

Euro/dollar: DOWN at $0.9777 from $0.9839

Euro/pound: UP at 87.43 pence from 87.40 pence 

West Texas Intermediate: DOWN 1.6 percent at $82.19 per barrel

Brent North Sea crude: DOWN 1.5 percent at $89.13 per barrel

New York – Dow: DOWN 0.4 percent at 30,076.68 (close)

— Bloomberg News contributed to this story —