City regulators will be given powers to tear up individual bankers' contracts, where too much reward for risk-taking is given.
Lord Myners, the government's City spokesman, revealed the plan yesterday. Regulators previously only had the power to intervene against a general bonus scheme by requiring banks to increase capital ratios.
This reform goes further, giving the Financial Service Authority (FSA) the power to re-write individual contracts. The rule would apply to all banks, not just those the government has a stake in.
The Financial Services Bill will be part of the Queen's speech, which sets out legislative plans for the next year, on Wednesday.
The Tories called the measures "headline grabbing", while the British Bankers' Association wanted that these changes could threaten the UK's future as a major global centre for finance.
The changes would not involve setting a cap on banker's bonuses, and would apply only to future contract.
Lord Myners said to the BBC: "We cannot accept the situation in the future where the incentives system in banks was leading them to do reckless things.
"So we have to take this action to make the banking system more accountable, more secure and ensure that it never again has to call on the taxpayer to bail it out."
He added: "We are going to make it very clear that contracts which contain bonuses clauses which will add to risk or contracts which guarantee bonuses for several years are no longer acceptable and, if those contracts are written, they will be voided under law."
Last month, the Centre for Economics and Business Research said that City bank bonuses would reach £6bn this year up from £4bm last year, because of rising profits and less competition.
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