Bank urges taxpayer to relax ban on cash bonuses

Photo / Bloomberg

Royal Bank of Scotland wants the permission of its largest shareholder - the taxpayer - to start paying cash bonuses of up to £50,000 ($104,253) again, it has emerged.

The bank is understood to be in talks with UK Financial Investments over the issue, despite a political climate favouring renewed curbs on bankers' bonuses as the Government faces pressure over cutbacks putting hundreds of thousands of public-sector workers out of jobs while others face pay freezes and cuts to other benefits.

The last Government set up UKFI to oversee taxpayers' "investment" in the banking sector and it was supposed to work "at arm's length from the Government". But this is widely seen to be something of a fiction: commercial shareholders would be unlikely to refuse such a request by RBS.

By contrast UKFI is thought to have proposed that a moratorium on cash payments last another year.

People with knowledge of the talks say RBS has been arguing that unless it can pay at least part of a bonus in cash it will be out of step with rivals and will struggle to retain "key people".

For the past two years the company has paid bonuses only in shares or in the bank's own debt, although its bankers have been able to sell a proportion of their packages immediately.

The ban on cash has also applied across the bank, even affecting more modestly paid staff.

Rivals, however, are able to award up to 20 per cent of a bonus in cash. That restriction also only applies to the most senior staff and those taking significant risks, such as traders.

RBS has repeatedly said it has been losing its best people to rivals and this will hurt efforts to turn round the bank, 84 per cent of which is in state hands thanks to its near collapse and multibillion-pound bailout. Neither RBS nor UKFI would comment.

News of the RBS talks came as a meeting between the big banks and George Osborne had to be postponed after the Chancellor was left stranded in the United States, a victim of the severe weather that has caused chaos in Britain.

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