By Christina Fincher
LONDON, Aug 14 (Reuters) - Banks that have benefited from taxpayers' money should be prevented from paying out large bonuses, opposition Conservative finance minister George Osbourne said in an interview in Saturday's Guardian newspaper.
"It is totally unacceptable for bank bonuses to be paid on the back of taxpayer guarantees. It must stop," Osborne said, wading into the debate over how much influence regulators should have over financial sector pay.
The Conservatives enjoy a wide opinion poll lead over Prime Minister Gordon Brown's ruling Labour Party. An election is due by mid-2010.
Osborne indicated regulators should clamp down on all banks benefiting from programmes to boost liquidity and confidence, and not just on banks that have been partly nationalised, such as Royal Bank of Scotland and Lloyds.
"There are hundreds of billions of pounds of guarantees in existence: guarantees provided by the taxpayer to all banks, to guarantee interbank lending and the like," Osborne said.
"If banks are using those guarantees and actually engaging in pretty low-risk activity and making huge profits on the back of it, and then paying huge bonuses, I think action needs to be taken," he said.
Policymakers across the world are seeking to rein in banking pay in a bid to prevent the excessive risk-taking that is blamed for the worst financial crisis since the Great Depression.
In Britain, Europe's top financial centre, an unprecedented set of measures to prop up the financial system has put an estimated 1.3 trillion pounds of taxpayers' money at risk. Britain's Financial Services Authority issued new guidelines about bank pay earlier this week, banning guaranteed bonuses of more than one year and suggesting pay be structured to discourage short-term risk taking.
However, concerns remain that the FSA has not gone far enough and banks are returning to business as usual after receiving billions of pounds in state support. The Conservatives have already pledged to abolish the FSA and put the Bank of England in charge of all financial sector regulation.
"The first line of attack is the regulator," Osborne said. "I think it's incumbent on the regulator to step in there and not moralise about whether people in the City should be paid a lot, but be very specific and say, 'This government support exists to rebuild balance sheets, not to pay bonuses.'" (Editing by Louise Ireland)