LibDems warn banks of bonus clampdown

Deputy Prime Minister Nick Clegg, the leader of the Liberal Democrat Party, gestures as he delivers his speech at his party's conference in Liverpool, northern England, September 20, 2010.

LIVERPOOL, England (Reuters) - The Liberal Democrats, part of the coalition government, told banks on Tuesday to rein in bonus payments, saying they risked being hit with higher taxes if they did not.

Business Secretary Vince Cable said that there was a general issue with high executive pay levels and specifically with bank bonuses because the financial houses were effectively underwritten by the taxpayer.

"There is a real problem here, it will resurface in the new year when the latest round of bank bonuses is revealed," Cable told a meeting on the fringes of the Liberal Democrat party conference, saying these were expected to be generous when the rest of the country was facing big public spending cuts.

His party leader Nick Clegg said earlier that taxes could be used if the banks did not show restraint.

"There are a number of options; the last government imposed a temporary tax on bonuses. I am not going to take any options off the table," said Clegg, deputy prime minister in the coalition.

Cable stressed that his comments on pay and bonuses were in line with remarks in the agreement unveiled in May when Britain got its first coalition government since World War Two.

He dismissed suggestions he was seeking favour with his centre-left party audience by attacking bankers.

The Labour administration, defeated in this year's election, imposed a 50 percent levy on bonuses of over 25,000 pounds paid in the last financial year.

The levy pulled in 3.5 billion pounds, around 1 billion more than previously thought, official figures showed on Tuesday.

BANKERS CRY FOUL

Britain has large stakes in Lloyds Banking Group and Royal Bank of Scotland after Labour rescued them during the credit crisis.

The British Bankers Association (BBA) warned that further taxes could hurt Britain's appeal as a financial services hub.

The BBA said as little as 20-30 percent of bonuses will be in upfront cash payments in settlements early next year following measures to defer payouts and force banks to pay a majority in shares.

"The UK is a major international financial centre and to remain in that position we need to attract and retain the top people and that means paying global market rates," it said.

(Additional reporting by Mohammed Abbas; Editing by Louise Ireland)