Bonuses row 'threatens business'

7 February 2012 Last updated at 21:54 GMT George Osborne said a strong free market was essential to improving the economy George Osborne has promised to fight an "anti-business culture", warning that the row over bonuses and pay threatens to undermine jobs and prosperity.

MPs have been debating a demand by Labour for "excessive" rewards for City executives to be reduced.

But in a speech to small business leaders the chancellor said "rewards for success" should be maintained.

Last week, Royal Bank of Scotland boss Stephen Hester gave up a bonus worth almost £1m amid public outcry.

This followed the announcement that the bank - of which 82% is owned by taxpayers - was laying off 3,500 staff around the world.

On Monday, Sir David Higgins, the chief executive of Network Rail, said he would turn down a bonus of up to £340,000, which would have been awarded, despite the company failing to meet some performance targets.

'Trust'

In the Labour-led debate in the Commons, shadow business secretary Chuka Umunna dismissed suggestions his party was being "anti-business".

He said: "The public rightly expects that the culture of excessive bonuses must stop. That means bank executives' remunerations - stated to be 'performance-related' - should be just that, related to performance.

"Very large bonuses should only be paid to reflect genuine exceptional performance if trust in the system is to be maintained."

But MPs rejected Labour's call for a new "bankers' bonus" tax to be introduced by 244 votes to 295, a margin of 51.

In a speech in London to the Federation of Small Businesses, the chancellor said: "Of course we need to reform our banking system and nobody has done more than this government to address the too-big-to-fail problem that so offends every taxpayer.

"Of course rewards for failure are unacceptable - and those who believe in the free market are the first to say so.

"But a strong, free market economy must be built on rewards for success.

"There are those who are trying to create an anti-business culture in Britain - and we have to stop them. At stake are not pay packages for a few but jobs and prosperity for the many."

In a letter to RBS staff, Mr Hester said press coverage of his bonus had been "discomforting to say the least", but insisted the bank was "making progress in the face of a difficult inheritance".