Under new European rules, the part-nationalised bank requires the approval of shareholders to award bonuses of up to 200 per cent of fixed pay.
However, RBS has been told by UKFI, which manages the Treasury’s stake in the bank, that it will not support a resolution which proposes a 2:1 ratio. It means the proposal will no longer be put to shareholders at its AGM in June.
In response, the bank said the move could harm its ability to compete for talent.
A Treasury spokesman said there could be no rise in the bonus cap because RBS has not yet completed its restructuring and remains majority public-owned.
The Treasury will not oppose a 2:1 bonus ratio at Lloyds Banking Group, in which it still has a 25 per cent stake, because the bank has largely completed its restructuring.
It added that RBS’s pay policies mean that it will remain a back-marker on pay compared with other banks.
The spokesman added: “We have made clear there will be no rise in the bonus cap for an RBS still in recovery, but a bonus cap at Lloyds that reflects the progress it has made in getting money back for taxpayers.
“A few years ago, bonuses were out of control, banks needed bailing out and the economy was shrinking. Under this Government’s long-term economic plan bonuses are down, the banks are recovering and the economy is growing.”
The EU bonus rules, which came into force on January 1, limit annual payouts for 2014 onwards to 100 per cent of annual salary, or a maximum of 200 per cent with shareholder approval. The Government believes the policies will not support stronger and safer banks and has launched a challenge to the rules in the European Court.
But Shadow Treasury Minister Cathy Jamieson said: “George Osborne is in a terrible muddle over bankers’ bonuses. He is spending taxpayers’ money on a legal fight in Brussels against the bonus cap and yet imposing the minimum cap at RBS.
“The Government has bowed to pressure on RBS and finally admitted that bonuses of two times salary would be unacceptable at what remains a bank in Government ownership.
“They voted against Labour’s motion to impose the minimum cap at RBS in January, but have now been forced to reverse their position.”