Cameron warns banks to show restraint or face new tax rise

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.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Ashdown Group: Training Programme Manager - City, London

£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

Day In a Page

Where the spooks get their coffee fix: The busiest Starbucks in the US is also the most secretive

The secret CIA Starbucks

The coffee shop is deep inside the agency's forested Virginia compound
Revealed: How the Establishment closed ranks over fallout from Loch Ness Monster 'sighting'

How the Establishment closed ranks over fallout from Nessie 'sighting'

The Natural History Museum's chief scientist was dismissed for declaring he had found the monster
One million Britons using food banks, according to Trussell Trust

One million Britons using food banks

Huge surge in number of families dependent on emergency food aid
Excavation at Italian cafe to fix rising damp unearths 2,500 years of history in 3,000 amazing objects

2,500 years of history in 3,000 amazing objects

Excavation at Italian cafe to fix rising damp unearths trove
The Hubble Space Telescope's amazing journey, 25 years on

The Hubble Space Telescope's amazing journey 25 years on

The space telescope was seen as a costly flop on its first release
Did Conservative peer Lord Ashcroft quit the House of Lords to become a non-dom?

Did Lord Ashcroft quit the House of Lords to become a non-dom?

A document seen by The Independent shows that a week after he resigned from the Lords he sold 350,000 shares in an American company - netting him $11.2m
Apple's ethnic emojis are being used to make racist comments on social media

Ethnic emojis used in racist comments

They were intended to promote harmony, but have achieved the opposite
Sir Kenneth Branagh interview: 'My bones are in the theatre'

Sir Kenneth Branagh: 'My bones are in the theatre'

The actor-turned-director’s new company will stage five plays from October – including works by Shakespeare and John Osborne
The sloth is now the face (and furry body) of three big advertising campaigns

The sloth is the face of three ad campaigns

Priya Elan discovers why slow and sleepy wins the race for brands in need of a new image
How to run a restaurant: As two newbies discovered, there's more to it than good food

How to run a restaurant

As two newbies discovered, there's more to it than good food
Record Store Day: Remembering an era when buying and selling discs were labours of love

Record Store Day: The vinyl countdown

For Lois Pryce, working in a record shop was a dream job - until the bean counters ruined it
Usher, Mary J Blige and Will.i.am to give free concert as part of the Global Poverty Project

Mary J Blige and Will.i.am to give free concert

The concert in Washington is part of the Global Citizen project, which aims to encourage young people to donate to charity
10 best tote bags

Accessorise with a stylish shopper this spring: 10 best tote bags

We find carriers with room for all your essentials (and a bit more)
Paul Scholes column: I hear Manchester City are closing on Pep Guardiola for next summer – but I'd also love to see Jürgen Klopp managing in England

Paul Scholes column

I hear Manchester City are closing on Pep Guardiola for next summer – but I'd also love to see Jürgen Klopp managing in England
Jessica Ennis-Hill: 'I just want to give it my best shot'

Jessica Ennis-Hill: 'I just want to give it my best shot'

The heptathlete has gone from the toast of the nation to being a sleep-deprived mum - but she’s ready to compete again. She just doesn't know how well she'll do...