EU bonus cap: What you need to know

Video: The Independent's Jamie Dunkley explains how the EU cap on bankers' bonuses works - and what it means for the City

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After spending billions bailing out lenders like Royal Bank of Scotland and Lloyds, it’s fair to say the thought of bankers getting big bonuses makes the public’s blood boil.

But under new European proposals, the lucrative payouts will be limited to 100 per cent of banker’s pay or 200 per cent with shareholder approval.

The cap is a direct result of the 2008 banking crisis when excessive risk-taking by bankers seeking to boost their bonuses was blamed for the collapse of Lehman Brothers and near meltdown of the entire British financial system.

The cap is extremely unpopular in the City and with the Coalition, which has today failed with a legal challenge in the European Court of Justice.

The defeat is not only embarrassing for the Chancellor George Osborne but has led to some experts warning that London could lose out to places like New York and Hong Kong.

Others say the EU move will only serve to jack up salaries and allowances and will not reduce overall pay. It is also likely to play into the hands of Nigel Farage’s UKIP.

The relationship between the UK, the City and Europe remains as fractious as ever ahead of a potential referendum on membership after the next election.