Bailed-out bankers facing curbs on fat cat bonuses

Downing Street made clear that Gordon Brown would be furious if bankers rescued with billions of pounds of taxpayers' money sought to pocket over-generous rewards.

The issue flared up after reports the Royal Bank of Scotland — now 68 per cent owned by the state after a £20 billion bail-out — was planning to give six-figure bonuses to traders whose deals exposed the bank to trouble. That was denied by the company, which said no decisions had yet been taken.

But Lord Mandelson, the Business Secretary, warned: "The banks have got to be sensitive to public opinion."

No 10 pointed out that as majority shareholder in RBS, the Treasury-run UK Financial Investments could refuse to support payments.

"Any proposal would only be supported if it is consistent with the taxpayers' interest," said the Prime Minister's spokesman.

Downing Street also voiced strong support for US President Barack Obama's plans, announced today, for a £346,000 cap on the pay of American bank executives forced to seek bail-out money from taxpayers.

"We have already set out our views on executive pay and we strongly agree with President Obama that we need a new approach to rewards for senior executives," the spokesman said. The Government's approach went much further than its previous decision to veto bonuses to main RBS board members as a condition of the bail-out.

Senior officials said the Treasury will put strong pressure on all banks seeking help from its latest rescue package to rein in remuneration.

And a close ally of Mr Brown warned that "public anger" over fat-cat payments could trigger similar curbs to those imposed by President Obama.

"I think the Obama comments are feeding into the public anger at the situation and indicate change," John McFall, the chairman of the Treasury select committee told the Standard.

Mr McFall added: "It is the traders and the deal-makers at RBS who got the bank into trouble. If there are big bonuses for them I think there will be a huge outrage."

Chancellor Alistair Darling will not order a ban on bonuses, sources indicated, as many City employees are contractually entitled to them.

However, the asset protection scheme recently announced by the Chancellor contained a clause allowing the Treasury to impose conditions on banks seeking the new form of aid. Levels of remuneration to executives and bonuses are one of the areas where conditions can be imposed.

"We will look at the issue of remuneration in the context of these negotiations," said the source. "We have a number of objectives, the principal one being to restart lending. Clearly, there are also these concerns about pay.

"I think if people see the Government providing significant support to these institutions they do not think it is right if people are extracting over-large salaries or bonuses."

Stephen Hester, the new chief executive at RBS, is reported to be acutely aware of the sensitivity of the issue and may order most or all of the bonuses to be paid in shares.

Under the Obama plan, shares could be given out but the recipient could only cash them in after money borrowed from the taxpayer is repaid.

Like most banks, RBS is bound by contracts to pay a number of staff bonuses. The bank's remuneration committee will also consider whether payments are needed to retain staff.