The Chancellor today resisted calls to cap the pay of executives in the banks bailed out by the Government and said that Britain had already gone further than the United States in curbing bonuses in the banks.

Alistair Darling told the Treasury Select Committee it was essential that the banks were able to retain key staff if the Government was going to be able eventually to sell them back to the commercial sector.

“We have also got to make sure that we don’t end up with a situation where other banks start attracting people who are key to making, say, RBS and the Lloyds Group work in the future,” he said.

Mr Darling admitted that it would be “tough” to return nationalised and part-nationalised banks to the private sector. “I think we are going to have these banks for a while yet,” he told the MPs. “It will take time to work through. There is no quick fix on this.”

The Government’s bailout of UK banks, spearheaded by Mr Darling, has come under fire after it emerged that Sir Fred Goodwin, the former RBS chief executive, who many credit with the bank’s troubles, will receive a £16.9 million pension.

He also told the MPs that bankers' pay will be subject to an imposed code in the future. “A code in respect to how remuneration is structured is absolutely essential.”

Mr Darling added: “It is good that excesses in the banking sector are brought to an end but it does mean our revenues [via taxation] suffer as a result.”

Asked about the likelihood of Barclays participating in the toxic asset insurance scheme, which part-nationalised banks RBS and Lloyds Banking Group have already joined, he said that the ball was in their court.

The Chancellor also painted a gloomy picture of the UK economy but maintained that there was some hope for the future: “There’s no doubt that we are, like many other countries, facing a very, very turbulent period. But if you look at the position at the moment, provided we maintain our support for the economy and provided we make it clear in the medium term that all countries will have to live within their means, we can get through this.”

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