Media playback is unsupported on your device Media caption George Osborne: "Guaranteed bonuses will become the exception and not the rule"

Chancellor George Osborne has warned banks that no measure "is off the table" if they refuse to cut the size of annual bonuses.

He also said he hoped talks between the government and City executives would result in more lending to firms and customers being treated "more fairly".

The comments come amid reports that payments for leading bankers will total £7bn this year.

But Labour's Alan Johnson accused the chancellor of "sneering arrogance".

Reports that the boss of Royal Bank of Scotland, which is 84% taxpayer-owned, is in line for a bonus of up to £2.5m have caused anger among many MPs and led to call for ministers to take action.

Barclays chief executive Bob Diamond, who will reportedly get as much as £8m, told the Commons Treasury committee earlier that he was "paid for performance, not for failure".

Downing Street has denied they had "thrown in the towel" in attempts to curb banker bonuses and argued that the imposition of a permanent bank levy would bring in £2.5bn a year by the end of this parliament.

'Stench of broken promises'

But Labour is urging ministers to extend its one-off bankers' bonus tax, which was in place last year and, it is argued, raised £3.5bn.

Shadow chancellor Mr Johnson put an urgent Commons question to Mr Osborne about the government's actions to curb bonuses.

People will be appalled to learn that for all the tough rhetoric, the government has never asked the Barclays chief executive to reduce his bonus Brendan Barber, TUC general secretary 'No bail-outs' says Barclays bossRobert Peston on the bonus row

In a noisy chamber, he said: "In just seven months this coalition government has gone from the scent of the rose garden to the stench of broken promises.

"The chancellor, who said we are all in this together, bows to the rich and powerful... His sneering arrogance won't get him out of this one."

Mr Osborne told MPs the previous Labour government had agreed a "something-for-nothing" deal with the banks, which saw large bailouts and little regulation. This had "rightly brought the British people to a state of anger".

On RBS bonuses, he added: "We are having to deal with the thoroughly inadequate contract negotiated by the previous cabinet... which encourages RBS to pay bonuses at the market rate."

Mr Osborne said the government was talking to banks about bonuses, adding: "We will make sure Britain is a world centre of a properly regulated and successful industry... If they [the banks] aren't able to meet our requirements, then nothing is off the table."

He also said: "I can confirm that we are now in discussions with the banks to see if we can reach a new settlement where the banks pay smaller bonuses than they would otherwise have done, are more transparent about those they do pay, make a greater contribution to local communities and regional economies, treat customers more fairly, and above all lend materially and verifiably more than they were planning to lend to the businesses of Britain - especially the small businesses - so that they can grow and create jobs this year."

Mr Johnson conceded in an interview with the BBC News channel that Labour had signed a deal to ensure market-rate bonuses at RBS and other institutions because "we cannot disadvantage those banks which the public has a share in".

Prime Minister David Cameron has said the coalition cannot "micromanage" banks and his deputy Nick Clegg told the BBC he understood public "anger", but restoring lending to people and firms was the priority.

Mr Diamond, the Barclays chief executive, was questioned by the Treasury select committee over whether he would take his bonus this year.

'Surrender'

He said he would discuss the issue with his family before deciding what to do and was determined to act "responsibly", adding that the government had not urged him to curb the amounts given out.

The total annual payments meted out to bank staff this year are expected to reach £7bn, down from £7.3bn last year.

BBC business editor Robert Peston said banks such as Barclays, which did not receive direct UK financial support in 2008, would continue to pay bonuses because they believed it was essential for them to continue to attract the best staff and thrive in the global marketplace.

The real controversy, he added, surrounded banks such as RBS and Lloyds Banking Group which were bailed out by the government in the wake of the financial crisis.

The TUC said ministers had "unconditionally surrendered" over the issue.

"People will be appalled to learn that for all the tough rhetoric, the government has never asked the Barclays chief executive to reduce his bonus," its secretary general Brendan Barber said.

"The cosy conversations taking place behind closed doors are the opposite of what voters are being told. The government's programme for Britain boils down to effective wage cuts for the many, service cuts for all and bonuses as usual for top bankers."