Ministers seek to cap rewards

Ministers are seeking to defuse public fury at City excesses with a cap on cash bonuses at banks rescued from collapse by the taxpayer.

A limit below £25,000 is being discussed between the Treasury and banks in which the State has shareholdings, including the Royal Bank of Scotland, though no final figure has been agreed.

The State already has a 68 per cent share in RBS.

RBS today denied a report that its new chief executive Stephen Hester would walk away with a pay-off of nearly £4 million if he was sacked.

The bank stressed that his contract stipulated that it would not be obliged to pay him anything if he departed due to his own failure.

His notice was two years and is being reduced to one, as part of his employment terms.

He was also not due to get a bonus this year.

Treasury officials are in talks with RBS bosses over capping bonuses paid in cash, though substantial share-based rewards may still be given.

Some reports suggest that the overall bonus payments by RBS will be slashed by two-thirds compared to last year.

Ministers accept it may be difficult to enforce a cap.

The Prime Minister has been accused of dithering over cracking down on bonuses for bankers, with new US President Barack Obama and French President Nicolas Sarkozy taking far more decisive action.

Mr Obama has announced a £355,000 limit on executive pay at US financial institutions that need major new government aid.

Mr Sarkozy has insisted that there will be no bonuses this year at banks that have received state aid.