David Cameron yesterday issued his toughest warning yet that Britain's banks will face a further tax hike if they keep paying out huge bonuses, as regulators unveiled new rules aimed at curbing risk-taking and excess.
Speaking at a press conference at the close of an EU summit in Brussels, the Prime Minister said: "Every decision the banks make like that makes it more difficult to keep a tax regime that they might favour." He added: "I think we have to start thinking more about the revenues we raise from banks."
Asked if he would raise the level of the £2.5bn bank levy that takes effect next month if bonuses were not curbed, Mr Cameron replied: "The banks have to understand that there is a political debate and a political context to all this, which is we have had to bail out the banks, we have had to use taxpayers' money in a difficult economic situation.
The Financial Services Authority (FSA) upped the pressure on the sector, revealing how it will introduce to Britain the new rules on pay agreed last week by the Committee of European Banking Supervisors (CEBS).
From 1 January, leading British banks will have to pay at least 50 per cent of bonuses in the form of shares, rather than cash, with bankers not permitted to cash in the stock for set periods, typically of several years. The FSA's revised remuneration code will also make it much harder for banks to pay guaranteed bonuses.
The code, which applies to the biggest banks from the beginning of next year and will thus apply to the next round of bonuses, came in for some criticism because it exempts smaller financial services firms from the most exacting rules. However, Gillian Chapman, a partner at City solicitor Linklaters, said the code would represent a step change in the regulation of City pay.
"This will fundamentally change bank bonus culture," Ms Chapman said.
The FSA's move brings the UK into line with the rest of Europe, but bankers, who had been surprised by the extent of some elements of the CEBS rules, warned that other financial centres around the world might view the crackdown as an opportunity.
"The financial services industrycontributes more than £1 in every £10 raised for the Exchequer," said a spokesman for the British BankersAssociation. "Until there is a genuine global consensus on pay in financial services, the challenge for policymakers will be to ensure the UK continues to attract this valuable business."
The Prime Minister said yesterday: "I do believe in social responsibility, that people have to think of the irresponsibilities when they make these decisions; and of course, every decision the banks make like that makes it more difficult to keep a tax regime that they might favour."
As well as sending a signal to the public, Mr Cameron's words reflect strong pressure from the Liberal Democrats for the Coalition to take a tough stance against the banks, as they urged at this year's elections.
Vince Cable, the Business Secretary, wants George Osborne, the Chancellor, to go further, and yesterday the Liberal Democrat leader, Nick Clegg, said: "It is wholly untenable to have millions of people making sacrifices in their living standards only to see the banks getting away scot-free – the banks should not be under any illusion: this Government cannot stand idly by."
However, Labour was unimpressed. Alan Johnson, the shadow Chancellor, said: "Nick Clegg's hot air on bankers' bonuses is designed to rehabilitate a tarnished reputation. But he is Deputy Prime Minister in an administration that will not even apply regulations that Labour introduced requiring banks to notify the public about individualbonuses in excess of £1m."
Mr Johnson claimed that LiberalDemocrat and Tory MEPs had been encouraged to push in Brussels for softer European rules on bonuses.Reuse content