In his 2008 party conference speech, David Cameron promised a "day of reckoning" for Britain's banks. More than two years later, as the banks prepare to pay out billions of pounds in bonuses, that day seems further away than ever. The Prime Minister believes that it would be wrong to "micromanage", "scapegoat" or "bash" the banks. Until recently, his appeal could have been directed at members of his own government. In August 2009, George Osborne called for a ban on bonuses in state-owned banks and urged bankers to join "the real world". In his preface to the Liberal Democrats' manifesto for 2010, Nick Clegg declared that the banks should not be allowed to "ride roughshod" over the economy while handing out bonuses "by the bucketload". In power, however, the gap between rhetoric and reality again lies exposed. Forced to choose between the interests of the banks and the interests of the public, the government has sided with the banks.

The voters may be suffering the biggest squeeze on living standards since the 1970s, but for the City of London it is business as usual. The chief executive of Barclays, Bob Diamond, is expected to receive a bonus of £8m, while Stephen Hester, chief executive of the 84 per cent state-owned RBS, is reportedly in line for a bonus of £2.5m. The banks may claim that bonuses are a just reward for high profits but their economic recovery was made possible only by the state bailout and by the Bank of England's ultra-loose monetary policy. It is the taxpayers, not traders, who deserve to be rewarded.

There is a powerful moral and economic case against excessive bonuses. Not only do they widen inequality and undermine social cohesion, they encourage traders to maximise risk in pursuit of short-term profits: the root cause of the financial crisis. The public understands this, which was why the Labour leader, Ed Miliband, was correct to call for an extension of the windfall tax on bonuses. Alistair Darling's 50 per cent tax on bonuses over £25,000 raised £3.5bn, four times more than the government first forecast and, contrary to the expectations of many, did not lead to an exodus from the City. By contrast, the coalition's bank levy, which excludes the first £20bn of banks' liabilities, is expected to raise just £1.25bn this year.

Not only has Mr Osborne abandoned any genuine attempt to restrict pay, he has delayed plans to force banks to disclose all bonus payments over £1m. Mr Cameron may have declared piously that "sunshine is the best disinfectant" but he has not applied this standard to the banks. The revelation that a quarter of all Conservative MPs and peers have held jobs in banking or the financial sector goes some way to explaining the government's inertia. The Conservatives have fulfilled their historic role as the party of big finance.

The uncomfortable truth remains that those who did the most to cause the financial crisis have suffered the least as a result. An economy laid low by avaricious bankers has embarked on an uncertain recovery and the jobless total continues to rise. Yet the coalition has not imposed so much as a compulsory lending requirement on the banks. In the meantime, all the structural conditions for a repeat of the crash are still in place. The government, having failed to learn from the mistakes of its predecessor, is condemned to repeat them.