Kitty tells fat cats they can keep their cream

The City minister, Kitty Ussher, has dismissed the growing clamour for reform of the way the City rewards its highest-paid staff, promising that the Government will lead the battle in Europe against calls for caps on fat cat pay.

Ms Ussher, the Economic Secretary to the Treasury, renewed New Labour's commitment to the City in front of an audience of bankers yesterday. "I hope that you'll agree that we have been careful to avoid any kind of knee-jerk reaction in this area, and to make sure that we don't put London's proportionate, principles-based system of financial services regulation at risk," she said. "Since last summer, there have been calls to be more prescriptive – but we will continue to defend our system, because we believe it is right."

Ms Ussher added: "We will also resist the calls that have been made for direct regulation of executive pay ... . I'm clear that executive pay is a matter for boards and shareholders – not for governments."

Her remarks are a rejection of criticisms that senior bankers have not always shared in the pain of the credit crunch, an issue which has led some EU governments, such as the Dutch, to consider legislation to limit executive pay.

Ms Ussher said that while she did not want to limit pay, she expected companies to be responsible. "Remuneration packages should be strongly linked to effective performance, and incentives should be aligned with the long-term interests of the business and of shareholders – and we don't support 'rewards for failure'."

Nevertheless, she failed to endorse suggestions by the Governor of the Bank of England, Mervyn King, and the Nobel economics prizewinner Joseph Stiglitz, among other distinguished figures, that the structure of remuneration in some firms was wrongly geared towards taking excessive risk-taking with "OPM" – other people's money.

Ms Ussher said more co-operation was needed between banks and government, and called on the industry to support the Savings Gateway accounts to be launched in 2010. Their aim is to encourage lower wage earners to save, with the Government promising to incentivise their efforts.