The chief secretary to the Treasury has poured cold water on plans being hatched inside Royal Bank of Scotland to pay bumper bonuses to senior staff.
Danny Alexander said he was sceptical about whether any application to double maximum payouts at the mostly state-owned bank could be justified.
The Liberal Democrat MP was responding to claims by Labour that the government was preparing to allow a bonus scheme that would enable the bank to bypass an EU cap on pay awards due to take effect next year.
David Cameron plans to impose a £2,000 cap on cash bonuses and has promised to veto any increase in the overall pay bill at the bank, but without limiting bonuses paid in shares.
After a steep cut in the number of investment bankers at RBS, Labour said the pool of funds would be shared among fewer individuals, undermining Cameron's pledge and allowing for even bigger pay awards.
Alexander told BBC1's Sunday Politics show that no approach had yet been made by RBS.
"I would obviously look at what they have to say, but I would be very sceptical as to whether a case could be made," he said, adding: "It's a bank that, along with the whole financial system, has benefited from the taxpayer standing behind it and where the strategy is now, RBS has to focus much more on domestic, retail and business customers."
RBS – 81% of which is owned by the taxpayer – is deciding whether to implement adaptations of schemes drawn up by rivals such as Barclays and HSBC, which are planning to offer top staff payments in shares alongside salaries and bonuses.
RBS said it was consulting about its pay arrangements but that no decisions had been made.
All the big European banks and international banks with operations in Europe are closely monitoring each other's efforts to find ways to keep offering multimillion-pound payments to staff despite the EU cap on bonuses.
Under the rule from Brussels – which came into force this month and applies to bonuses handed out in a year's time – bonuses for the most senior bankers must be limited to 100% of salary unless shareholders give explicit permission for double that.
Labour forced the issue of pay at RBS and the bonus cap out into the open by calling on the government to use its stake in the bank to prevent any bonuses of more than 100% of salary being awarded.
If RBS decided to proceed with a 200% maximum, the government could block this by refusing to back any resolution put to the annual meeting – usually held in May – asking for the authority to do so. But the government – through its vehicle UK Financial Investments – also faces the possibility that RBS could hand payments on top of salary and bonuses to some of its most senior bankers who fall under the scope of the bonus cap.
The plan constructed by Barclays was the first to be exposed, although that plan to make cash "role-based allowances" is thought to have been modified further. The payments are now more likely to made in shares issued monthly. HSBC is considering awarding shares to thousands of its bankers, which they must hold on to for a number of years.
The Wall Street bank Goldman Sachs has delayed informing staff in its European operations about their pay arrangements for 2014 while deciding how to handle the bonus cap.
Among the components of the additional payments being considered by RBS are thought to be shares, or a form of bonds that the recipient can cash in a certain number of years later. The bank has used payments in the form of bonds to pay bonuses in the past.
The European Banking Authority, the pan-Europe regulator, has set out definitions of those bankers who should be subject to a cap as anyone taking or managing risk. It had originally said anyone earning more than €500,000 (£410,000) a year would fall under the cap but has now exempted them if they are not taking or managing risk.
Under a different definition of these so-called "code staff" used in the past, RBS had 368 employees who were earning an average of £700,000.
guardian.co.uk © Guardian News and Media Limited 2010
image: © Mark Ramsey