City fury at George Osborne’s bonus war on bankers

George Osborne warns that City bonuses make the credit crunch worse

George Osborne faced attacks from all sides today after calling for a clampdown on big bonuses.

The shadow chancellor wants the regulators to take action to ban high street banks from giving big cash payments as rewards.

Mr Osborne said he was talking about "emergency measures this Christmas", adding: "Let's end the big cash bonuses. If there's spare cash at the bank it should be lent out to small businesses, medium businesses, to help people keep their jobs."

The Tories reckon that reining in bonuses would free about £10billion for loans. But Treasury Chief Secretary Liam Byrne mocked Mr Osborne for "wimping out", saying his proposals would "actually water down the rules we've put in place, which are now the tightest in the world".

British Bankers' Association chief executive Angela Knight, a former Tory Treasury minister, queried the omission of investment banks, adding: "The big bonus culture is not in retail banking but investment banks."

And Mr Osborne's stance infuriated bankers who warned that financiers would move abroad if they felt they were being unfairly targeted. David Buik of broking house BGC Partners said: "It is profoundly wrong. The idea is supposed to be a vote winner, but it lacks practicality. It is far too rigid if he wants London to maintain its presence at the top of the financial tree. We need a sensible bonus culture, but not this. He is completely and totally wrong."

Manoj Ladwa, senior trader at ETX Capital, said: "Mr Osborne's idea of robbing Peter to pay Paul sounds like a knee-jerk reaction to a deeper, underlying problem." A City banker who did not want to be named said: "It's all just a political game because the man on the street wants to bash bankers."

Mr Osborne was not giving a figure in a speech in Canary Wharf setting out the policy, but in the past the Conservatives have talked about a £2,000 cap with bigger bonuses being made in shares.

Labour asked why the Tory policy did not apply to investment banks, whose "casino banking" was at the heart of the credit crunch. "Is Osborne looking after his real friends in the City," asked one source.

The shadow chancellor's move pre-empts legislation expected to be unveiled by Labour next month.

Writing in today's Evening Standard, Mr Osborne says the Treasury and the Financial Services Authority already have the power to implement the ban on cash bonuses. Last week it was predicted that City bank bonuses would hit £6billion this year, up from £4billion last year, because of rising profits and less competition.

Mr Osborne told GMTV: "This is still a credit crunch, and it would be inexcusable for banks to pay out big bonuses to their staff, when there are so many businesses that need that cash." He stressed he was not talking about "people at the cash tills".

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