UK’s four biggest banks agree to rein in bonuses

­­The UK’s biggest banks yesterday agreed to rein in bonuses and lend £190 billion to businesses this year after hammering out a long-awaited deal with the Government.

Meanwhile the Liberal Democrats’ Treasury spokesman in the House of Lords stepped down last night after criticising the Governments’s deal with the banks.

Lord Oakeshott had given up the role “by mutual agreement”, Lib. Dem. Chief Secretary to the Treasury Danny Alexander said.

Earlier in the day 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, which comes after months of fraught talks with the major players, dubbed Project Merlin.

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

Last year, Mr Hester and Mr Daniels both waived their bonuses after being awarded £1.6 million and £2.3 million 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.

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 £10 billion to £76 billion and overall lending will increase from £179 billion to £190 billion.

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 £4 billion this year.

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

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

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.

Lord Oakeshott yesterday branded the Treasury’s long-awaited deal with the banks as “pitiful”. Mr Alexander said Lord Oakeshott had felt “unable to support” the Government’s arrangement with the banks.

“As a result he’s no longer a Treasury spokesman in the House of Lords by mutual agreement,” he said.

“I think that’s the right decision.”