The biggest banks in the country have pledged to cut bonuses, publish the pay of their top executives and increase the amount of lending to businesses.
The Chancellor, George Osborne announced the deal after a conference call with the four banks participating in the deal. HSBC, Royal Bank of Scotland, Barclays and Lloyds have all signed off on the Merlin Deal.
This deal with the treasury will ensure that the bonuses paid tom UK-based staff will be much lower than last years.
This comes as the two biggest banks in the UK confirmed the pay packets that would be received by their Chief Executives’. RBS boss Stephen Hester is set to receive a £2.04m bonus for 2010, while outgoing Lloyds chief Eric Daniels will be offered a £1.45m bonus. Both payouts will be in shares.
The Merlin Deal means that cash bonuses will be limited to £2,000 for RBS and Lloyds staff and any bonuses for executive will be paid out completely in shares. They will not be able to sell these until 2013.
The deal also ensures increase lending to small and medium businesses, £179 billion to £190 billion.
The Merlin Deal will also include a specific clause that the chief executives of the major banks will not be able to receive their maximum pay and bonus if the bank does not meet its specific lending commitments.
Mr Osborne said its time to move “from retribution to recovery”.
The banks have also made a pledge to give £200 billion as part of a start up fund for the Big Society Bank. This will please David Cameron, as many critics have said the Big Society plan had been put on the backburner.
The Merlin project has received criticism from shadow Chancellor Ed Balls, who claimed that Mr Osborne had received “precious little” from the banks.
He said: “For a Chancellor who talked so tough in Opposition and who even yesterday continued to promise much, this is a pitiful outcome and an embarrassing climbdown.”