Alex Deane: Our defeat in Europe over bankers' bonuses is a disaster for the City

Alex Deane is Head of Public Affairs at Weber Shandwick. Follow Alex on Twitter.

We now know that a cap on bankers' bonuses will be imposed by our European friends, against the UK's wishes. Whilst our government has seen some very welcome recent successes in Europe, I fear that this news outweighs those gains in no uncertain terms.

Even if the idea was right in principle, which it isn't, it falls down given the all-too-obvious point that the EU doesn't control global banking (thank goodness). Other banks will be able to pursue a more free market approach, whilst EU banks will now be competing with one hand tied behind their backs. In short, this measure gives a competitive advantage to banks headquartered outside Europe. Bankers working for EU-headquartered banks in Singapore or Zurich or New York will be handicapped in a way that their market competitors will not. The effect on their performance will be obvious. If your labour can command better remuneration elsewhere (and not in another country, but across the street!), then you'll go. It is simply daft.

As I say, there's really no principle to justify such a policy in any case. Subject to a minimum wage, which we have, people should be paid whatever the market arrives at, when demand matches supply. If people are paid too much, then it's for shareholders to stop it, not governments. There may be an issue with insufficiently active shareholders, but this legislation does nothing to address the problem. The state, let alone the superstate, has no business meddling in the private contractual arrangements made between employer and employee. They’ve picked on the easiest possible target because everyone loves bashing bankers, but it’s an appalling principle that grants power like this to the state.

Good rules give incentives to do the right thing. This rule has plenty of incentives to do the wrong thing. In response to it, affected banks can do three things: find other (potentially less accountable) ways to funnel remuneration to high-performing staff; remove headquarters from the EU; or become less competitive. None of these things are in the interests of shareholders, the economy or the taxpayer.

But our continental partners don't care, because much of the wealth generation concerned here (which pays for our healthcare, our welfare, our schools through tax) is in the City of London. It’s the EU’s favourite kind of European rule – it's passed in Brussels, but it hits activity concentrated here in the UK.

If they’re trying to give us good reasons to leave the EU, they’re doing a very good job.