Plans to impose a cap on bankers’ bonuses moved a step closer yesterday in the face of opposition from George Osborne.
The Chancellor told his European counterparts he could not support “the proposal currently on the table” at negotiations in Brussels.
But he was firmly told the “broad majority” of the 26 other European Union nations were in favour of the new laws.
Although the proposals, which limit bonuses to a maximum of a year’s salary or double that if explicitly backed by shareholders, can still be fine-tuned, yesterday’s talks paved the way for a formal vote of approval by ministers next month.
Political opponents seized on the failure to block the policy, which Conservatives fear will harm the City, as an illustration of “how weak and ineffective” the UK government is in Europe.
British officials have protested that the cap on bonuses was never part of the terms of the “Capital Requirements Directive” being negotiated.
Earlier, Prime Minister David Cameron’s official spokesman said the UK wanted to “ensure that there are the right long-term incentives linking remuneration to long-term performance” within the financial industry.
He warned that imposing a cap on bonuses might lead to significant increases in bankers’ basic salaries, which are not subject to clawback procedures that means bankers have to pay back money if things go wrong.
Unless reversed by EU ministers, the new accord is due in force at the start of next year as another weapon in the armoury to stabilise banks against future economic shocks.
Britain’s claim that the move on bonuses would put EU banks at a competitive disadvantage weakened a little before the talks when Switzerland backed the idea of curbs on bankers’ remuneration packages.
EU officials in Brussels, however, are speculating that the UK may try to invoke a little-used “national interest” defence to block a majority agreement.
The so-called “Luxembourg Compromise” allows a member state to block a majority decision being taken if an issue is deemed to seriously affect “a very important national interest”.
Treasury officials said EU ministers were warned of the “perverse effects” a cap could create, such as pushing up basic salary levels.
Labour MEP Arlene McCarthy, Vice President of the European Parliament’s Economic and Monetary Committee, said: “Yet again, we have an example of the government’s failure to proactively engage in and influence EU policy in Britain’s national interest.
“Why has the UK government failed in the last 18 months to put an alternative proposal on the table, and waited until the last minute to raise objections?
“This government needs to take a crash course in finding friends and influencing EU partners.”
Ukip economic spokesman Godfrey Bloom said: “So much for David Cameron’s talk of repatriating powers from the EU.
“This outcome on bankers’ bonuses perfectly illustrates how weak and ineffective the British government is in defending the interests of one of our largest industries.”