The cap on bankers’ bonuses is being removed as part of a post-Brexit shake-up of UK financial rules, it has been confirmed.

The plan was announced by former chancellor Kwasi Kwarteng last year as a way of making London a more attractive place to do business.

It was one of the few mini-budget policies to remain after most were unwound by Mr Kwarteng’s successor.

Introduced in 2014 when the UK was part of the EU, the cap was designed to curb excessive risk taking in the financial services industry in the wake of the 2008 financial crash.

The cap limited the variable pay of employees of banks, building societies and investment firms to twice their base pay.

Finance bosses have long complained about the rules, saying they lead to higher base pay that pushes up banks’ fixed costs.

Those costs cannot be adjusted in line with the firm’s financial performance, they add, making it to cut costs during a downturn.

But critics have argued that uncapping bonuses could make the financial system more risky.

There have also been concerns that the move will benefit wealthy people at a time when many households are struggling with the cost of living.

An HM Treasury spokesperson said: “Decisions on remuneration in the banking sector are for the PRA as the independent statutory regulator.”

Darren Jones, Labour’s shadow chief secretary to the treasury, said the decision “tells you everything you need to know” about the priorities of the government.

“Rishi Sunak is marking his anniversary of becoming Prime Minister by pushing ahead with Liz Truss’ plan to axe the cap on bankers’ bonuses,” he added.

Paul Nowak, general secretary of the TUC, called the decision “obscene”.

“City financiers are already enjoying bumper bonuses. They don’t need another helping hand from the Conservatives,” he said.

“At a time when millions up and down the country are struggling to make ends meet – this is an insult to working people.”The decision to scrap bankers’ bonuses was subject to a consultation by the Financial Conduct Authority and the Prudential Regulation Authority (PRA).

In a joint statement on Tuesday, the two regulators said the bonus cap had “unintended consequences” with firms ending up increasing bankers’ fixed pay.

They added that when fixed or base pay accounted for the biggest share of remuneration, employers had less room to vary employee pay due to “material poor performance or misconduct”.

The plan to remove a cap on bankers’ bonuses was unveiled in the mini-budget in September 2022, under the then-Prime Minister Liz Truss and her Chancellor, Mr Kwarteng. However, the package of measures in the mini-budget sparked turmoil on the financial markets and Mr Kwarteng was sacked shortly afterwards.

Most measures were reversed by the new Chancellor, Jeremy Hunt. However, the plan to scrap the bankers’ bonus cap was one of the few mini-budget policies to remain.