RBS in talks to pay cash bonuses of up to £50,000

Royal Bank of Scotland wants the permission of its largest shareholder – the taxpayer – to start paying cash bonuses of up to £50,000 again, it has emerged.

The bank is understood to be in talks with UK Financial Investments over the issue, despite a political climate favouring renewed curbs on bankers' bonuses at a time when the Government is facing pressure over cutbacks that will see hundreds of thousands of public sector workers losing jobs while others face pay freezes and reductions to other benefits.

UKFI was set up by the last Government to oversee taxpayers' "investment" in the banking sector and was supposed to work "at arms length from the Government". However, this is widely seen to be something of a fiction: commercial shareholders would be unlikely to refuse such a request by RBS.

By contrast UKFI is thought to have proposed that a moratorium on cash payments last another year. People with knowledge of the talks have indicated that RBS has been arguing that unless it can pay at least part of a bonus in cash it will be out of step with rivals and will therefore struggle to retain "key people". For the last two years the company has paid bonuses only in shares or in the bank's own debt, although its bankers have been able to sell a proportion of their packages immediately.

The ban on cash has also applied across the bank, even affecting employees with relatively modest remuneration, such as branch-based staff. This is not the case with rivals, which are able to award up to 20 per cent of a bonus in cash. That restriction also only applies to the most senior staff and those taking significant risks, such as traders.

RBS has repeatedly said that it has been losing its best people to rivals and that this will hurt efforts to turn round the bank, 84 per cent of which is in state hands thanks to its near collapse and multi-billion pound bailout during the financial crisis. Neither RBS nor UKFI would comment.

News of the RBS talks came as a meeting between the big banks and George Osborne had to be postponed after the Chancellor was left stranded in the US, a victim of the severe weather that has caused chaos in Britain. Mr Osborne's colleagues have been facing criticism over the UK's lack of preparedness for the cold snap, which is said to be costing the country's fragile economy more than £1bn a day.

The meeting, billed as a showdown between Mr Osborne, the Business Secretary Vince Cable, and senior bankers, is now likely to take place later this week. Plans for an industry-wide deal that would see all banks showing "restraint" have been much talked about but have yet to yield anything concrete.