The Liberal Democrats are making a final attempt to persuade David Cameron to rein in bankers' bonuses amid growing public anger over the imminent payout estimated at £7bn.
Liberal Democrat MPs believe that Mr Cameron, rather than the Chancellor, George Osborne, has emerged as the main obstacle to tough action against the bankers. They are furious that Downing Street signalled a climbdown this week while talks continued with the big banks on a new settlement covering bonuses and lending to small businesses and first-time buyers.
"You don't wave the white flag in the middle of tough negotiations," Baron Oakeshott of Seagrove Bay, a Liberal Democrat Treasury spokesman, told The Independent yesterday. "This is the moment of truth on fairness for our Coalition. We can't allow a bonus bonanza in the age of austerity."
Lord Oakeshott, a former City fund manager, said the Government must stick to the agreement made when the Conservatives and Liberal Democrats joined forces last May. Its opening section says: "We will bring forward detailed proposals for robust action to tackle unacceptable bonuses in the financial sector." The Liberal Democrat peer said: "Nick Clegg and Vince Cable are putting up a terrific fight for the Coalition Agreement. It is a package deal, not a pick-and-mix of the policies you fancy."
The Government's efforts to reach a voluntary deal with banks suffered a setback last night when it emerged Santander is to pull out of negotiations. The Liberal Democrats want the Government to use all the weapons at its disposal – especially on the Royal Bank of Scotland and the Lloyds Banking Group, in which taxpayers have a stake.
Ministers have criticised the previous government for not ensuring that this year's bonuses were curbed. But Lord Oakeshott insisted: "Just because Labour cocked up the contract for Stephen Hester [the RBS chief executive], it does not mean we have to sign the cheque. The taxpayers are paying 83p of every pound that he collects."
He added: "The public-sector banks are failing the public. RBS and Lloyds have both missed their legally binding lending targets by a mile."
As well as a crackdown on bonuses, Lord Oakeshott is demanding tough disclosure rules for top earners in all banks. He wants names as well as salaries to be disclosed. "The current system makes a mockery of corporate governance because institutional shareholders do not know what the top earners are collecting," he said.
The salaries of everyone whom RBS and Lloyds paid more than £142,500 (the Prime Minister's salary) should be published in line with the rules for other public servants, he said.
Santander scuppers talks
Spanish bank Santander has pulled out of high-level talks between the banks and the government aimed at boosting commercial lending, restricting bonuses and releasing more details over pay deals.
The decision is a blow to hopes of an industry wide agreement across the entire banking industry, and the government's aim to secure a combined £200bn in commercial lending, including a £1bn contribution to David Cameron's "big society bank".
Standard Chartered left the negotiations, which are being led by Barclays, before Christmas. HSBC and the bailed-out Royal Bank of Scotland and Lloyds Banking Group are understood to be continuing their discussions and aiming to conclude talks by January 23rd.