Alistair Darling will today announce a drive against the “reckless culture” that brought the banks to their knees — starting with a crackdown on annual City bonuses.
Ministers are anxious to head off embarrassing headlines disclosing that major financial institutions are lavishing multi-million-pound rewards for senior staff this Christmas. The Chancellor will publish legislation within weeks to outlaw exorbitant handouts and penalise financial institutions that attempt to pay them.
The new rules, in line with an agreement between the leaders of the G20 largest industrialised nations in Pittsburgh last Friday, will form a key measure in the Queen's Speech in November, and will be designed to end “the reckless culture that puts short-term profits over long-term success”.
The legislation will ban the “bad old days” of automatic payment of handouts every year, requiring that bonuses are deferred over time so they can be clawed back if they are not warranted by long-term performance.
“We won't allow greed to ever again endanger the whole global economy and the lives of millions of people,” the Chancellor will tell the Labour conference in Brighton.
But as the new law cannot come into force until next year, Mr Darling will meet senior bank executives within days to urge them to show voluntary restraint when it comes to this year's bonuses.
The Prime Minister also warned yesterday that there was international unanimity over the need to stop rewarding City traders for speculation and short-term deals.
He also announced plans for a Fiscal Responsibility Act to bind legally the Government “whether it is Labour or Conservative” to specific reductions in borrowing.
He has pledged to halve Britain's £175bn deficit within four years.
In today's speech, Mr Darling will say last year's financial crisis was both a “test of leadership for the Government” and “a test of judgement for the Conservatives”. He will argue: “It was a test they failed at every turn.”