British Prime Minister David Cameron said yesterday that EU plans to limit bankers’ bonuses threatened his country’s national interests, and the Bank of England said the rules would not make bankers take fewer risks.

Britain has done a lot to isolate itself from the rest of the European Union

Britain was left isolated at a meeting in Brussels on Tuesday and failed to water down new EU rules limiting bankers’ bonuses, a measure that could threaten London’s dominance as a global financial centre.

“There is an important issue here. There are some important British national interests,” Cameron told Parliament “We are responsible for 40 per cent of the EU’s financial services ... (and) we want to make sure that international banks go on being headquartered here in the UK.”

Earlier yesterday, Bank of England official Andrew Bailey – who will be in charge of day-to-day regulation of British banks from April – also criticised the proposals.

Limiting variable bonuses would simply push up the fixed part of bankers’ remuneration, making it harder to cut costs in a downturn or claw back pay in cases of malpractice, reducing the incentive for bankers to think long-term, he said.

“Losing those two incentive mechanisms before we get to a solution for the ‘too big to fail’ problem is something that concerns me,” he told legislators reviewing British banking law.

However, both he and Bank of England Governor Mervyn King played down the longer-term significance of the bonus rules for Britain’s position as a financial centre. A bigger threat was that banks were still too large and complex to shut down if they got into trouble, King said.

“If we fail to solve the ‘too big to fail’ problem, there are only two countries in the world that will have big banking sectors – the United States and China – because their economies are so big that their taxpayers can afford to bail out the system,” King said.

King also urged a deep restructuring of the Royal Bank of Scotland as he delivered his most stinging criticism to date of the way it has been run since its rescue by the government in 2008.

European Union officials indicated that the best Britain could hope for in further negotiations over the rules in the coming weeks was perhaps an increase in the amount of bonus that can be deferred and therefore discounted when calculating the total payout.

But Michel Barnier, the European Commissioner for financial regulation and an author of the proposals, said the broad parameters would not change. Asked about the possibility of any legal challenge to the bonus cap, he replied: “Good luck.”

Britain’s powerful financial sector fears the rules will put London at a disadvantage and provoke an exodus of major banks and staff to rival financial centres, although HSBC, one of Britain’s largest banks, has said it does not have any plans at this stage to move its headquarters.

German Finance Minister Wolfgang Schaeuble indicated that he would be uncomfortable with any country being outvoted on the new legislation, opening up the possibility of some change.

EU officials indicated that any alterations are likely to have only a slight impact on the total amount of bonus that can be paid.

“There is very little further we can do for them because we pushed the negotiations to quite a degree, and we got the best possible compromise with the Parliament,” Noonan told reporters before the meeting began. “There isn’t any more room left.”

Schaeuble told ministers he would back a greater flexibility in how a banker’s bonus is calculated, which could allow banks to pay more over the long term, said one official who attended the talks.