George Osborne’s call for emergency measures to force bankers to take the bulk of their Christmas bonus in shares has been greeted with ridicule.

Lord Oakeshott of Seagrove Bay, the Liberal Democrats’ Treasury spokesman, said that the Shadow Chancellor’s plans would mean taxpayers footing the bill for City bonuses.

“If state-owned banks such as RBS and Lloyds pay bonuses using shares, they would have to issue new equity, which would dilute the taxpayer’s holdings,” he said. “George Osborne clearly does not understand how shares work . . . His ignorance is toe-curling and he hasn’t a clue how markets and public companies operate.”

Mr Osborne expressed concern, in his speech at Canary Wharf yesterday morning, that retail banks were preparing to award themselves cash bonuses that would take capital from lenders’ balance-sheets and deprive business clients of much needed credit facilities. Britain’s biggest lenders are now setting aside cash-bonus pots for workers. The Conservatives insisted that, should RBS and Lloyds be forced to issue new equity, existing shareholders would benefit from increased capital.

Senior bankers pointed out that the City had already agreed to onerous new rules on bonus payments and ex- plained that next Monday they would be required to present to the Financial Services Authority details of total bank pay and the size of the cash bonus pot. Those submissions are to be followed by meetings between banks and City regulators over the amount that lenders want to pay themselves.

The FSA will judge whether the amount of pay to be disbursed to financiers and the value of cash bonuses set aside is appropriate. It has the right to veto proposed pay deals and can force a lender to reduce the amount of cash it pays financiers in bonuses.

One banker, who declined to be named, said that he was baffled by Mr Osborne’s comments, insisting that the City had already signed up to pay terms set out by the G20 countries this year. He added: “We can only assume that this is pure political rhetoric from the Conservatives.”

The British Bankers’ Association said: “UK banks understand that stories about high pay and bonuses cause anger . . . However, the big bonus culture is not in retail banking but investment banks.” It added: “The UK’s main banks have signed up to the FSA’s code on remuneration and they are the first banks in the world to commit themselves in full to the rules agreed at last month’s G20 meeting. But for the agreement to be fully effective these rules must be implemented by all G20 members.”

Mr Osborne criticised the Government over bailout schemes that had barely been touched by homeowners, consumers and banks in desperate need of them. He said the City was expecting a Tory victory at the election, an assumption that was underpinning confidence in the financial markets. Mr Osborne also warned that Britain’s forecast £170 billion deficit this year would require the next government to pay more in debt interest than the annual budget for any department. He said his party wanted to reduce borrowing more sharply than the Government was envisaging but it was too early to say by how much or when.

Q&A on banks and bonuses

Are there new rules that govern how much bankers can be paid? There are no caps on how much a financier can be paid, but new Treasury rules structure their remuneration

How strict are these new rules? Next Monday banks have to present to the Financial Services Authority the sum they want to pay in bonuses. They also have to show how much they are intending to pay in salaries, benefits and pensions. The FSA can veto the plans, and can stipulate that bonuses be clawed back where performance does not warrant them. The regulator has also curtailed guaranteed bonuses and insisted that more of bonuses should be paid in shares

Is there wriggle room? There is already evidence that banks are beefing up basic pay levels

What about Osborne’s plans? Yesterday he indicated that a cash bonus cap could be set at £2,000, with anything else paid in shares.

Times Recommends

• ‘Lame duck’ fear for FSA as chief quits
• Storm over bailout of EU's most ailing economy
• Northern Rock to drop 100% savings guarantee