Osborne calls for bank-bonus limit

Shadow chancellor urges government to ban bonuses over £2,000

The shadow chancellor, George Osborne, is to call for high street banks to be banned from paying cash bonuses of more than £2,000.

In a speech to Thomson Reuters in Canary Wharf, he will call on the Treasury to warn retail banks which have made "billions in subsidised profits" that they will no longer receive taxpayer guarantees and liquidity support if they continue to pay excessive bonuses.

Instead, he will argue that large bonuses to high-performing staff should be paid out in the form of shares in the business.

The measure, described by the Conservatives as an "emergency" plan, would be temporary, and would not apply to investment banks.

The party says the move could free up £20bn for banks to lend to businesses and consumers.

Osborne is expected to say: "It is time for the Government to act - and act decisively. We cannot wait for the promised land of a new responsible bonus culture which looks more remote than ever. We need to take emergency steps to support bank lending and move the economy forward. The banks have to understand that we are all in this together."

He will also reject claims that bonus curbs could damage Britain's international competitiveness. "To those who say that Britain should not act alone, I say we would not be," he will say.

"The Obama administration's new policy will see the pay of the top bankers cut by 90%, and banks have been told to pay out in shares instead. America is acting. Britain at the moment is not. We need confidence and credit. We need this emergency plan to stop cash going this Christmas into the bank accounts of bankers and instead get that cash into the rest of the economy. Cash for the economy - not cash for the bonuses."

But the Chief Secretary to the Treasury, Liam Byrne, said that a cap on bonuses would be "unworkable" and accused Osborne of hypocrisy.

He said: "The Tories have fought against every plan we've delivered to support jobs and businesses. And if we withdraw support now, as Mr Osborne wants, the recession will be longer and deeper.

"We have already introduced the toughest bank remuneration policy in the world. We have stopped short of banning all bonuses for retail banks because it is unworkable, but we are presently negotiating with RBS and Lloyds on the payment of 2009 bonuses".

Official data on Friday showed that the economy shrank by 0.4 per cent in the third quarter and is now in its longest recession since records began.