City pay caps are not the answer to bonus culture

Shadow chancellor George Osborne has called on the government to stop banks using taxpayers’ cash to subsidise “mega pay deals”

The Conservatives demanded action following reports that the City’s bonus culture was making a comeback.

Osborne said, “I warned last month that another unacceptable round of big bonuses were on their way.

The banks should watch out that they don't misuse taxpayers’ money – it’s there to support lending in the economy, not mega pay deals.

"The RBS deal, signed off by the Treasury, doesn't exactly inspire confidence that the lessons of the financial crisis have been learnt," he added.

At a speech to City financiers today, Osborne is expected to suggest bank bonuses are paid in the form of new equity capital, shares in the business that can’t be cashed in for three years.

“This equity capital will strengthen the balance sheet and support lending,” he will say.

A survey by Income Data Services revealed bonuses for top British executives have shrunk by 29 per cent. However, the research also found that many pay packages remained at more than £500,000 as companies strove to keep talent by plugging bonus losses.

The typical FTSE-100 company boss’s pay has risen by 7.4 per cent, way above the rate of inflation, IDS said.

Similar sentiments were expressed by US president Obama and his “pay tsar” Kenneth Feinberg last week as he announced caps on top-level pay packages at bailed-out companies.