CBI says bank bonuses 'toxic' amid government jobs cull

Richard Lambert said the banking system was built on trust and that needed to be rebuilt

The head of the CBI has said bankers will seem "arrogant and out of touch" if they carry on paying bonuses while the public sector is cut.

Richard Lambert said a combination of pay freezes and job losses in the public sector with large City bonuses would be "toxic in the extreme".

His comments came in a wide-ranging speech on the future of banking.

In it, he also warned that the banking system was built on trust, and that needed to be rebuilt.

His speech, his last on banking as the outgoing CBI director general, was entitled: "Banking - the dialogue of the deaf must end and the recovery must be financed - but how?"

Mr Lambert, who is a former Financial Times editor and one-time member of the Bank of England's Monetary Policy Committe, said the current discourse between the politicians and the bankers was not helpful.

Casino caricature

"This back and forth between the politicians and bankers - what you might call Vince Cable versus Lombard Street - is not constructive."

He said it was important to restore public confidence in banks and it was therefore irresponsible to caricature them as casinos.

He said he had initially thought the Coalition Government's Independent Commission on Banking (ICB) was a bad idea, because it prolonged uncertainty, but that he had now changed his mind.

But he said he was against one of the key issues the ICB is examining - that of splitting a bank's retail operations from its investment arm - saying that a lot of the banking sector's problems were caused by simple bad investment decisions.

Critics have said that such a split could damage the UK's competitive edge and make banks leave the UK.

The ICB, chaired by Sir John Vickers, has been set up to look at financial stability and competition.