To ask Her Majesty's Government what assessment they have made of the prospects of moves to ensure that bonuses in the financial sector are not linked to turnover, profits or short-term results. [HL177]

The Government have been clear that the banking sector needs to develop sustainable long-term remuneration policies that take better account of risk.

The FSA has published its remuneration code of practice which comes into force on 1 January 2010. In advance of this all the banks subject to the code had to provide the FSA with a remuneration policy statement to demonstrate compliance.

The Government have introduced the Financial Services Bill to Parliament which contains measures to ensure that the remuneration practices do not incentivise excessive risk taking.

These will ensure that remuneration policies are aligned with long-term success through a greater component of bonuses being paid in the form of shares as well as the use of deferral and claw-back should future performance deteriorate.

Furthermore, in the 2009 Pre-Budget Report the Government announced a temporary bank payroll tax of 50 per cent which will apply to discretionary bonuses above £25,000 awarded in the period from Pre-Budget Report to 5 April 2010 for each individual employee.

This tax will encourage banks to consider their capital position and to make appropriate risk adjustments when setting the level of bonus payments above the threshold, which is at the level of median earnings in the UK.

To ask Her Majesty's Government what assessment they have made of the prospects for the full implementation of the Financial Services Authority's draft code of practice for executive remuneration, especially by companies in which the taxpayer has a stake. [HL178]

The FSA has published its remuneration code of practice which comes into force on 1 January 2009. In advance of this all the banks subject to the code had to provide the FSA with a remuneration policy statement to demonstrate compliance.

The Government have also asked the FSA to provide an annual report on remuneration practices, including compliance by firms with the new code. This report will assess whether remuneration practices are likely to lead to a build up of systemic risk, and make recommendations for action if this is thought to be the case.

The banks in which the Government are a shareholder are managed on an arm's-length commercial basis by United Kingdom Financial Investments (UKFI). The Government expect their investee banks to beat the forefront of complying with the FSA's code and UKFI is working with the banks as a shareholder to ensure their remuneration policies are aligned with long-term value creation.