Bankers who are not prepared to forgo controversial contracts that flout new rules on bonuses should get out of the mainstream industry, Lord Myners has declared.

The City Minister fired a warning shot ahead of the Queen’s Speech tomorrow, which will outline plans to forbid guaranteed bonuses and other pay deals. Lord Myners, in an interview with The Times, said: “People who are not willing to subordinate their own egos to the stability of their companies or the financial system probably shouldn’t carry out activities in deposit-taking banks.”

This week’s financial services Bill will give the Financial Services Authority (FSA) the power to tear up bankers’ contracts that do not sufficiently link risk and reward. Top of the list of contracts that the Government wants to end are multi-year guaranteed bonuses, which have an “asymmetric” relationship between risk and reward, Lord Myners said.

The Government wants to go further by enforcing changes to ongoing contracts in cases where bankers receive a share of profits with no adjustment for risk being taken. Lord Myners said that the legislation may affect between 5,000 and 10,000 highly paid bankers in London who take big financial bets as part of their jobs. In total, banks employ 428,000 people in the UK.

The new law is to be enacted before the next general election. It will not apply to 2009 pay, which is expected to be a bumper year with £6 billion handed out in bankers’ rewards, according to the Centre for Economics and Business Research.

Although the law will not be retrospective, lawyers said that the crackdown would still trigger a flood of litigation over ongoing contracts and attempts to define what is constituted by inappropriate risk.

The initiative will also hand a significant burden to the FSA, which has not until this year been significantly involved in pay issues.

David Berman, a partner in Macfarlanes, the City law firm, said that a “spate of judicial review actions” may be brought against the FSA by disgruntled bankers with deep pockets.

Another flashpoint will be Sir David Walker’s report on banking on November 26. It is expected to recommend that banks be forced to publish pay bands covering their highest-paid staff. The Treasury has considered going farther and requiring banks to identify these individuals by name, but has backed away from the move.

Banks are pushing for wide bands, which will not give a detailed breakdown of pay. Lord Myners warned that the bands would have to be meaningful and ensure that the “full architecture is visible”.

The FSA introduced a pay code for banks in August. The code required institutions to submit pay reports — some of which run to 300 pages — to the FSA by November 2. The regulator is discussing the documents with the banks. The new law is intended to add extra heft to the code.

Jon Terry, a partner in PricewaterhouseCoopers, said the multi-layering of laws and regulations could lead to confusion and “issues of not-level playing field, between listed versus non-listed, hedge funds versus investment banks and UK versus non-UK”.

Several banks are arguing that pay should not be a major focus of the Government and regulators because it did not cause the financial crisis. Lord Myners disagreed, saying that pay had been a “contributing factor”.

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