EU talks to cap banker bonuses are 'threat to City's fabric'

Talks reach deadlock as experts fear Britain will be the biggest loser

Controversial plans to introduce a cap on bankers' bonuses across the European Union appeared to hit the buffers last night as politicians failed to reach an agreement.

Officials close to the discussions, which are being spearheaded by Michael Noonan, the Irish finance minister, said representatives of EU countries and the region's parliament remained locked in a diplomatic battle having failed to agree on the finer details of the plans.

News of the deadlock came as experts warned capping bonuses could "damage stability and growth". The CBI said the plans could reduce shareholders power ahead of an announcement which could come tomorrow.

Earlier, Boris Johnson claimed the proposals were a "threat to the fabric" of the City. The London Mayor urged Brussels not to "butt in" on the right of London's financial institutions to set their own pay as MEPs prepared to vote on imposing a bonus limit of a year's salary.

Katja Hall, chief policy director at the CBI, said: "These are worrying discussions because a move away from variable to fixed pay is in complete contrast to what we're trying to achieve, to ensure that pay properly reflects performance.

"This would take the power to hold companies to account out of investors' hands, by removing tools such as voting on pay policy and implementation, and on board member selection. Such a move would fly in the face of financial stability, by removing companies' ability to quickly respond to a downturn by adjusting pay."

MEPs have been pushing hard for a cap on bonuses and the Irish presidency of the EU has made the reforms a priority for the next six months, while Germany has dropped its opposition to it.

Mr Johnson said: "It's a threat to the very fabric of the City of London because it's not part of a global response and threatens to undermine London's international competitiveness compared with New York or the emerging Asian powerhouses."

It is understood the Mayor fears a cap could push up salaries, making it harder for banks to cut costs. However, he said banks needed to "give something back" by raising the lowest-paid workers' wages to the London living wage of £8.55 an hour, as well as taking part in more philanthropic activities.

Experts now fear that Britain and the City will be the biggest losers in the battle against the toughest restrictions on bankers' bonuses since 2008. The UK appears to be leading a minority of three countries that oppose the imposition of a new rule which would limit bonuses to no more than 100 per cent of salary, or 200 per cent if approved by a super-majority of shareholders.

p Andrew Bailey has been appointed as a deputy governor of the Bank of England. Mr Bailey will also head the Bank's new Prudential Regulation Authority, which is designed to prevent banks and other financial institutions taking on too much risk.

His appointment is effective from 1 April. There are currently two other deputy governors – Paul Tucker, who is in charge of overall financial stability and Charles Bean, who leads on monetary policy.