City minister Paul Myners yesterday came out with a show for support for embattled Royal Bank of Scotland.
At a hearing of the Treasury Select Committee Mr Myners said that placing too many curbs on pay at the company could damage its ability to compete. "If we want RBS to compete in a global world... it has to equip itself appropriately to do that," he said.
"If we said to RBS that you can only pay your key employees up to the national average... or some other arbitrary figure, the effect would be a significant erosion in the competitiveness of the bank, the loss of its ability to (provide) credit, a loss of employment - particularly in Scotland - and a decline in the stature of the bank."
The minister's words follow several such warnings from RBS, which is 84 per cent owned by the state, itself. Chief executive Stephen Hester has railed against what he called the "politicisation" of the bank, although at a hearing of the same committee on Tuesday he backtracked and said he regretted his earlier words.
RBS has become the focus of the government's tough tactics pay. It has been forced to agree to slash cash payouts and handed the Treasury a veto on its 2009 pay policies as a consequence of its entry into the state-backed "asset protection" scheme. However, it has secured agreement from UK Financial Investments, the body overseeing the Government's interest in the banking sector, for this years pay plan.
RBS is 84 percent owned by the tax payer after the Government pumped billions of pounds in to stave off a possible collapse. Mr Hester was appointed to lead the recovery after his predecessor Sir Fred Goodwin, widely blamed for leading the company to near ruin, was fired.
Mr Hester has said that investors have expressed concerns over RBS's ability to hire and retain top performers and warned that staff who work at the bank have had to deal with the public opprobrium it has faced, although many of those responsible for its problems have been fired.
Mr Myners said imposing a tough bonus clampdown on RBS alone would do little to change global banking behaviour and would severely disadvantage the and the tax-payer's chances of getting a return on the billions invested into it: "The Royal Bank of Scotland cannot redefine the world alone," he said.
RBS has denied its board threatened to step down over the veto issue, but has said it took legal advice on issues related to it and their ability to function as directors as a result.