Banks to rein in bonuses and boost lending in deal

Chancellor George Osborne unveiled details of a truce with the “big four” banks – Barclays, Royal Bank of Scotland, Lloyds Banking Group and HSBC – which will see total bonus pots lower than last year, lending to small business increased and the pay of the highest paid executives published.

He said Britain needed to move from “retribution to recovery” and called for an end to banker-bashing with the pledge dubbed Project Merlin, which comes after months of fraught talks with the major players.

Taxpayer-backed RBS and Lloyds revealed pay packages for their top bosses following the announcement, RBS head Stephen Hester in line for £2.04m and outgoing Lloyds chief Eric Daniels offered a £1.45m bonus.

Last year, Mr Hester and Mr Daniels both waived their bonuses after being awarded £1.6m and £2.3m respectively for 2009.

Both handouts will be in shares which can be cashed in three years, while neither bank will pay more than £2,000 in upfront cash bonuses to any staff. But there was no detail on the total bonus pool set to be distributed by big banks.

Labour Shadow Chancellor Ed Balls was scathing about the package of measures, saying Mr Osborne had “thrown in the towel” on bonuses.

He said: “For a Chancellor who talked so tough in opposition and who even yesterday continued to promise much, this is a pitiful outcome and an embarrassing climbdown.”

The deal was struck despite Tuesday’s surprise move by Mr Osborne to increase the new bank tax by £800m this year, which some had feared could throw discussions off course.

Under the deal, banks have pledged that total bonuses for UK-based staff will this year be lower than in 2010, while banks will be required to publish details of the pay packages not only of board members but also the five highest-paid executives outside the board.

The four banks, as well as Santander, have agreed to increase lending to small businesses by £10bn to £76bn and overall lending will increase from £179bn to £190bn.

Spanish-owned Santander – which was not part of the bonus talks – separately announced it will increase gross small business lending by 25 per cent to nearly £4bn this year.

And banks will contribute £1.2bn towards the regional economy, including £200m to capitalise a new Big Society Bank.

Mr Osborne said he recognised the anger felt by many voters towards the banks.

He told MPs: “The anger at the terrible mistakes of the banking industry and the failure of those who regulated it will long remain, and rightly so.

“But let us as a country confront this hard truth – anger and retribution will not bring one percentage point of growth or create one job.

“The anger will remain and we must never make the same mistakes again, but Britain must move from retribution to recovery.”

Bosses at the top banks – as well as the relevant department heads – will see their pay linked to performance against SME (small and medium enterprises) lending targets.

The Bank of England will also publish figures against lending commitments on a quarterly basis.

Mr Osborne said the Government “reserves the right to return to the issue and take further measures” if banks fail to live up to their lending promises.