Andrew Grice: How bonuses became a headache for Brown

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The Independent Online

"We are not going to chase headlines on bank bonuses," one Cabinet minister assured me on Sunday. "This is a highly complicated issue and we will do what is right, not what gets the right headline."

Twenty four hours later, after more bad headlines for the Government about its inability to halt huge bonuses for bankers, it seems that Gordon Brown was chasing good headlines after all. After saying they would not "do an Obama" – a reference to the United States President's £340,000 salary cap for bankers whose firms have taxpayers' support – British ministers are now trying to repeat his trick.

The Treasury is believed to be leaning heavily on Royal Bank of Scotland (RBS), which is reportedly planning to pay out £1bn in bonuses, to impose a voluntary cap of £25,000 on individual bonuses, with the rest paid in share options. Ministers hope such a ceiling will be announced today when the new regime at RBS gives evidence to the Commons Treasury Select Committee.

Mr Brown has made clear he is "very angry" about the bonuses being proposed by the banks. On another issue, an expression of prime ministerial anger might take some of the heat off Downing Street. But not when the public might feel even more angry than Mr Brown on the grounds that their money is lining the pockets of people responsible for getting us into the financial crisis.

The truth, as ever, is more complicated. Mr Brown is adamant he will not allow those bankers who failed to be rewarded. But perceptions – and headlines – matter and he knows it.

Ministers groan that bankers' bonuses are one of the most complex issues they have dealt with. Should any curbs apply only to the past, and not the future? Should they be for directors or executives too? Should they apply to staff for whom bonuses are part of the normal conditions of employment? Would the Government jump into a legal quagmire if it tried to outlaw bonuses? Could any ceilings be imposed on banks, such as Barclays, in which the Government does not have a stake if they take advantage of its insurance scheme for their bad debts?

No wonder ministers are desperate to see the banks impose restraint on themselves, which would take some of the pressure off the Government.

Some ministers admit privately that they have some sympathy for the new broom of bankers trying to turn round the stricken banks. Stephen Hester, the new chief executive brought in to shake up RBS, has impressed government officials. Ministers said he could not be "expected to work for peanuts" and that the banks would not attract or retain the good people they need if they did not pay the going rate – including bonuses.

Ministers are reluctant to impose a cap on bonuses at banks in which taxpayers do not have a direct stake. "They are private companies; we cannot micro-manage their salary structures," one said.

But raw politics is now overtaking such arguments. The fire over bank bonuses is one of the biggest to blow up in the recession and the Government needs to put it out.

Opposition parties scent blood. The Tories say a bonus cap is an option, without formally committing themselves to one. The Liberal Democrats say the major banks should be nationalised and all bonuses scrapped.

Labour MPs are also on the march. John McDonnell, the MP for Hayes and Harlington, said: "Gordon Brown needs to get a grip and take decisive action now to cap bonuses."

President Obama's huge fiscal stimulus will help Mr Brown but his headline-grabbing salary cap for bankers has done the opposite.