UK State Bank Warns of £1 Million Bill to Hire a Top Executive

(Bloomberg) -- The British Business Bank has warned officials it could cost as much as £1 million ($1.3 million) to hire a manager for its flagship investment fund unveiled last autumn, setting the scene for a potential clash with a likely Labour government after the July 4 election.

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The state-owned lender — a 600-strong organization — invests public and private cash to support sustainable growth, the green transition and small businesses. In last year’s autumn statement, Chancellor Jeremy Hunt promised a £7 billion capital injection to help create the “Growth Fund.” Its aim is to co-invest with UK pension funds in the nation’s “most promising businesses” and turbocharge the $3.1 trillion local economy.

Executives at the bank have spent the last few months talking to officials about the logistics of setting up the fund, which would be the largest on the lender’s books, people familiar with the matter said, asking not to be identified discussing confidential information. The discussions included market rates for hiring a portfolio manager to oversee it.

The talks have featured illustrations showing that the market rate for such a manager of a similarly sized fund with a similar profile would be around £1 million, largely made up of a bonus, the people said. One of them stressed that the British Business Bank had not made any formal or firm proposal on the pay.

Written Agreement

Like other organs of the state, the British Business Bank has a cap on how many executives can earn more than the Prime Minister’s salary of about £170,000. They can’t exceed that limit without prior written agreement from the Secretary of State.

The latest public figures, from December 2022, show the bank had permission to pay 24 executives more the PM’s salary. Chief Executive Officer Louis Taylor has a maximum pay package of just under £500,000, including a base salary of £330,000, according to its latest annual report.

The British Business Bank believes that investors will want to see the interests of the portfolio managers aligned with those of their funds, which means the managers must have the potential to earn large bonuses. It has also argued that it must pay competitively if it wants to attract top talent to manage such an important project, one person said.

Still, the issue is likely to be a contentious one with Labour if the party returns to power next month after a 14-year stretch in opposition.

The British Business Bank had high level talks with key Labour figures before the announcement of the elections on May 22 heralded a “quiet period” for political engagements. Since then, executives have been working with officials at Treasury and the Department for Business & Trade — which owns the British Business Bank — on a plan to present to the next Chancellor and Business Minister once they are appointed.

Labour’s Priorities

Incoming ministers will be invited to re-brand the fund, and to include new aspects that speak to Labour’s priorities, the people said. References to Conservative ambitions like “leveling up” will be expunged, one of the people said. Labour has previously spoken about its desire for the British Business Bank to increase funding for female-led businesses. The initiative will be kept separate to other government investment vehicles, including the UK Infrastructure Bank, the people said.

Representatives for the British Business Bank, which advanced £1.2 billion of loans and invested £419 million in companies last year, declined to comment, citing the quiet period. Spokespersons for Treasury and the Department of Business & Trade also declined to comment.

--With assistance from Katherine Griffiths.

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