The Government is prepared to change the law to strip former banking chief Sir Fred Goodwin of his £650,000-a-year pension, Commons Leader Harriet Harman hinted today.
Ms Harman said the payout was "money for nothing" and vowed that the ex-Royal Bank of Scotland chief executive would not end up with the cash even if his retirement deal proved legally watertight.
Sir Fred, blamed for leading RBS to near collapse and a taxpayer bail-out, has resisted demands that he give up the lucrative package which he insists was approved by ministers.
But Ms Harman, Labour's deputy leader, said that all necessary steps would be taken if the 50 year old would not do the "honourable" thing.
"Sir Fred should not be counting on being £650,000 a year better off as a result of this because it is not going to happen," she told BBC1's Andrew Marr show.
"The Prime Minister has said it is not acceptable and therefore it will not be accepted. It might be enforceable in a court of law this contract but it's not enforceable in the court of public opinion and that's where the Government steps in."
Ms Harman declined to say exactly what action could be taken but reports this week have suggested a special Act of Parliament was being considered by Downing Street as a last resort.
"The Prime Minister has asked him to forego it and obviously we want him to do that - that's the most straightforward and honourable way to do it.
"It is being crawled over by the lawyers to see whether it is actually an enforceable legal contract.
"So I don't want to jump ahead of it but I do want to be clear that the Prime Minister has been quite emphatic about this that he regards it as unacceptable."
She said the payout was a reward for failure.
"I can't see how it is a pension because he is not retired. It is money for nothing, it is a severance payment, and to get a severance payment when you have led a bank to the brink of collapse with record losses and thousands of people fearing for their jobs and requiring the public to step in with loans to back up the bank, that is a matter of public interest."
RBS, which is now more than 70 per cent owned by the taxpayer, posted annual losses of £24.1bn this week, a UK corporate record.
Gordon Brown yesterday renewed his demands for Sir Fred to give up the payout voluntarily and said the Government was exploring "all the legal action necessary" to force the issue.
"The boards have gone, the executives have left, the severance payments have been dealt with. There is the outstanding question of the pension," he said.
"I hope that even now Sir Fred will realise that when you record the biggest losses of any company in British history, there should be some recognition of that in the pension fund.
"Of course we are considering all the legal action necessary."
The renewed focus on Sir Fred's pension came as the Treasury faced demands to explain an alleged secret dossier at the heart of the Lloyds takeover of Halifax Bank of Scotland.
Liberal Democrat deputy leader Vince Cable has tabled a parliamentary question asking if the dossier still exists, and if its contents can now be revealed.
The Treasury document was submitted in evidence during the unsuccessful legal challenge in December and January by opponents of the merger.
The Merger Action Group (MAG) fighting the decision to waive competition law to allow the merger to go through took its case to a two-day hearing in London of the Competition Appeal Tribunal, but lost.
HBOS slumped to annual losses of £10.8bn this week and Lloyds Banking Group - the UK "super-bank" created by the merger - expects the enlarged group to post a loss as bad debts soar in 2009.
Lloyds is now 43 per cent owned by the taxpayer after the Treasury pumped £17bn into the two banks last year.
MAG believes the Treasury document, which was not made public, set out why Mr Brown and Chancellor Alistair Darling thought the takeover was the only option.
The group also believes that copies of the document have been destroyed.
Mr Cable's parliamentary question asks if the original still exists, and if so whether Mr Darling will now reveal its contents.
He said today: "Now that the takeover has gone through and we know the extent of HBOS's losses there would seem to be no longer any need for secrecy and that is why I am asking for this document, which was a key element of the Government's case, now to be made public."
Mr Cable's question also asks what advice was given to Business Secretary Lord Mandelson by the Financial Services Authority about the merger and what alternatives his department considered.
A spokeswoman for the Department for Business, Enterprise and Regulatory Reform said: "We've kept all the records that informed the Secretary of State's decision."Reuse content