The future of City bonuses hangs in the balance as the Treasury prepares to examine bonus structures as part of a review into banking to be led by Sir David Walker.

The news comes amid reports that the 68 per cent taxpayer owned RBS is intending to pay its key players a total of £1billion, despite their part in the banking crisis.

The rumours have sparked outrage over the reward of reckless behaviour, and Chancellor Alistair Darling was yesterday forced to speak out on the subject on the BBC’s Andrew Marr Show.

Commenting, Darling told Andrew Marr, “I spoke to the chief executive of RBS and I’ve made it clear, and he agrees, that no-one that is associated with these large losses should be allowed to walk away with large cash bonuses.”

However, Darling also added that, “Obviously there are contractual problems with some staff,” indicating that some bonuses may have to be paid.

Recently formed Lloyds Banking Group has also faced similar criticism as it could soon pay large bonuses to ex HBOS chief’s who failed to make it onto the board at Lloyds Banking Group.

Speaking yesterday, Mr Darling said: “Whereas in the past a bonus was something special you got as a reward for hard work or putting in an extra effort, over the years a lot of bankers have come to expect it as a right, very large bonuses, and that can’t go on.”

Since coming into power in America, President Barack Obama has introduced a cap on the salaries of bankers, and although bonus schemes amongst UK banks will come under Government scrutiny, it is unlikely that a cap will be put in place.

According to reports in The Independent today, The Government would reject such action because it would not attract the best people to run the banks, and that such people would simply go elsewhere.

Liberal Democrat leader Nick Clegg called the launch of a Government review into banking bonuses ‘pathetic’ and ‘timid’ yesterday on the BBC’s Politics Show, claiming that it was unnecessary. He said:

“We do not need an inquiry to answer the question of whether bankers should receive bonuses – the right answer is no.”

And, according to Shadow Chancellor George Osborne, the review will be too late to impact on this year’s bonuses, he told The Andrew Marr Show, “as far as I can see, it just speaks volumes of how the Government approaches the credit crunch and the whole recession, which is hand to mouth, chasing headlines, behind events.”

The British Bankers’ Association has welcomed the review, it said: “We have always said that shareholders – including the Government – also have a key role also in deciding remuneration.

“We will gladly engage with the Government on this further review.”

© Fair Investment Company Ltd