RBS backs down over big bonuses

Royal Bank of Scotland has indicated it will bow to pressure to slash executive bonuses after a bruising row with the Treasury, it emerged today.

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The bank, which is 70% owned by the taxpayers, is thought to want to cool tensions and avoid a showdown with the Treasury over the size of rewards it is able to pay.

RBS was forced to hand over control of its bonus pool to the Treasury as a condition of signing up to the Government's insurance scheme for its toxic assets.

The bank's directors had threatened to quit the bank if the Treasury used its power to impose a cap on the bonus pot.

But RBS insiders have told the Financial Times that pay-outs in its investment banking division would be 'at the low, low end of the scale', even if that meant losing experienced staff to better-paying rivals.

The row comes as it emerged today that another bailed-out bank, Lloyds, plans to give 200 of its executives a one-off payment worth up to 80% of their salaries.

Liberal Democrat Treasury spokesman Vince Cable said ministers should 'call the RBS directors' bluff' and let them resign.

He said: 'This confrontation has been a long time coming. The bank is still operating as if it is a private bank in the good old days. The government has got to be very firm.'

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But the Prime Minister sought to head off a mass departure as he insisted no bank would be 'discriminated against'.

Mr Brown said: 'Most sensible people would accept that if we come to a worldwide agreement about what the bonus structure should be, then every major bank in the world will want to follow that.

'And nobody is being discriminated against because every bank is having to follow these procedures.'

Amid signs of Government confusion, Labour deputy leader Harriet Harman blasted the bank's board as 'irresponsible and reckless'.

She said: 'I'm happy to condemn those who simply have no recognition of the fact that people expect the banks to play a part in the economy and lend to businesses, pay back the money they've needed because they've nearly fallen off the edge of a cliff because of recklessness and irresponsibility and expect them not to award themselves massive bonuses.' Lord Myners urged all banks, including those not supported by the taxpayer, to take into account the 'broad public concern' over pay and bonuses.

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He said that without restraint, more than 5,000 bankers in the UK would earn more than £1m this year.

Tory spokesman Mark Hoban said: 'The Government's policy on bonuses is a muddle. The City Minister claims he will veto big bonuses, only to be superseded by the Business Secretary calling for banks merely to show restraint.

'We have been clear - no significant cash bonuses should be paid this year and the money should go towards increasing lending to the families and businesses who propped up the banks in the first place.'

But Howard Wheeldon, a City analyst with BGC Partners, said: 'Don't lose sight of how necessary it is for banks to make enormous amounts of money if Government debt is to be paid back. They need to retain key staff to enable them to do just that.'