UK rejects calls to cap executive pay

Australian Associated Press | AAP

Britain's Treasury chief Alistair Darling rejected calls to cap the pay of executives in banks that were part of the government's multi-billion pound (dollar) bailout package, arguing that Britain has already done more than the United States to curb excessive bonuses.

As angry US lawmakers prepared to levy heavy taxes on employee bonuses at insurance giant American International Group Inc. and at other companies that received bailout money, Darling said it was essential that the banks were able to retain key staff for the government to eventually return them to the private sector.

"We have ... got to make sure that we don't end up with a situation where other banks start attracting people who are key to making, say, RBS and the Lloyds Group work in the future," he told lawmakers, referring to the banks that have received substantial government funds.

"Whatever we do, we've got to manage these banks in such a way that we can get them back into the commercial sector," he added. "I don't think anyone wishes us to be running banks for ever and a day."

However, he acknowledged that it will be "tough" to return nationalised and part-nationalised banks to the private sector.

"I think we are going to have these banks for a while yet," he said during questioning by the cross-party Treasury committee. "It will take time to work through. There is no quick fix on this."

In the U.S., the Democrat-led House voted for a bill to slap punishing taxes on big employee bonuses from AIG and other firms bailed out by taxpayers.

Britain's own banking bailout has come under fire after it was revealed that former RBS Chief Executive Fred Goodwin, who many analysts blame for overextending the bank, will receive a STG16.9 million ($A35.49 million) pension pot.

Darling stressed that bankers' pay will be subject to an imposed code in the future.

A government-commissioned report by Britain's financial services regulator released on Wednesday which proposed sweeping changes to the way banks are regulated recommended that remuneration policies be designed to discourage bankers from "taking excessive risks with other people's money."

Darling, who is due to present the country's annual budget next month, added that it was positive that excesses in the banking sector were brought to an end, but noted that government revenues from taxes will suffer as a result.

Darling said he remained upbeat about the longer term prospects for the British economy.

"We are facing a very, very turbulent period," he said. "But if you look at the position at the moment, provided we maintain our support for the economy and provided too we make it clear that in the medium term all countries have to live within their means, I believe we can get through this."