Talks over curbing bank bonuses grind on

Talks to rein in bankers' pay are set to continue over Christmas after bank bosses met George Osborne and Vince Cable to hammer out a deal, the Government has announced.

The heads of Britain's five biggest banks – including Barclays and part-nationalised Royal Bank of Scotland and Lloyds Banking Group – were called in to see the Chancellor and Business Secretary earlier yesterday as they seek an agreement limiting excessive City handouts in the forthcoming bonus round and to boost lending to businesses.

The Government said talks – postponed from Monday after Mr Osborne's flight from the United States was delayed because of the snow chaos – were "constructive", but ongoing.

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A spokesman said: "The banks have put a number of proposals on the table.

"The Government affirmed its desire to see a strong, responsibly and internationally competitive financial sector. The dialogue was constructive.

"These proposals will be the subject of further discussions over the Christmas period with the aim of building a sustainable, co-operative relationship between the lenders and Government in 2011 in support of the economic recovery."

Banks and Government have been locked in talks for some weeks over the issue of pay and lending, with concerns they will not meet original aims to have a deal agreed by the end of the year.

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Mr Osborne and Mr Cable want to avoid a lavish bank bonus season at a time when the country is undergoing painful spending cuts following the recession, brought on by the banking crisis.

They also want to see the sector support the UK recovery through increased lending to small businesses.

It is thought the banks may agree to pledge 200bn in lending to small businesses.

But the banks are also said to want clarification on what the Government defines as an unacceptable bonus.

The scale of bank bonuses have been a highly contentious issue since the Government was forced to support some with taxpayers' money.