Cash bonuses at the predominantly state-owned RBS will be limited to £2,000 next year, David Cameron has told the Commons.
The Prime Minister said the existing £2,000 cap would continue to apply and he also promised to veto proposals to increase the overall pay bill.
His comments came after Labour tabled a parliamentary motion calling on the Government, as the majority shareholder in RBS, to reject any request from the bank for permission to pay bonuses of up to double an employee’s annual salary.
Mr Cameron said: “I can confirm today that just as we have had limits on cash bonuses of £2,000 at RBS this year and last year, we will do the same next year as well.”
He added: “If there are any proposals to increase the overall pay, that is pay and bonus bill at RBS, at the investment bank, any proposals for that, we will veto it.”
Chancellor George Osborne has warned of the dangers of creating a “Fred Goodwin-style situation” in Britain’s banks, as he comes under pressure to block massive bonuses at RBS.
Under an EU cap, bonuses of more than 100% of basic salary must be approved by shareholders – in RBS’s case, the British taxpayer, represented by the Chancellor.
But the Government is challenging the cap in the courts, and Mr Osborne has warned it would not lead to bankers receiving less money, as financial institutions can be expected to respond by paying higher basic salaries, which he said would be more difficult to claw back if things go wrong.
Answering questions at a conference on EU reform in Westminster, the Chancellor said: “This Government has done more than any to bring the banking system back under control, to regulate banking properly, to ring-fence our retail banks and make sure bankers are properly accountable and if things go wrong the money that they were given can be taken off them.
“These European rules will not lead to bankers being paid less. What they will lead to is a Fred Goodwin-style situation where you will not be able to get money back off bankers when things go wrong.
“That is precisely what we have been trying to get away from in Britain.”
Downing Street said the RBS board had not yet made a proposal on staff bonuses, while RBS stressed it had not made any decision on whether to seek shareholder approval to pay the maximum allowable bonus.
The row blew up as Labour leader Ed Miliband prepared to set out new plans for reform of the UK banking system, expected to include a requirement for the “big five” high street banks to sell branches to smaller competitors.
The EU cap came into force on January 1, limiting bonuses for all those earning more than one million euro (£830,000) to a year’s salary – or a maximum of two years if shareholders approve.
But the new rules will not affect the upcoming round of bonuses set to be handed out for performance in 2013, instead applying to payments from this year onwards.