Gordon Brown has promised a "transformation" of the way the financial sector is policed as the centrepiece of Wednesday's Queen's Speech.

A Financial Services Bill will offer tough new powers to City regulators to tear up bankers' contracts if they include excessive pay and bonus deals.

In an upbeat podcast on the Downing Street website, Mr Brown said Britain had a "bright future" ahead of it after the economic difficulties of the past year.

He said that the UK had fared well in terms of jobs and repossessions compared with the last recession under the Conservatives in the early 1990s.

The Prime Minister said he was "optimistic" about the coming period "which I believe can be one not of austerity but progress".

Chancellor Alistair Darling said theFinancial Services Authority would get new powers to stop bankers pocketing big bonuses.

There would also be powers to cancel pay packages which rewarded undue risk-taking.

Legislation to be unveiled on Wednesday will also enable the FSA to require banks to renegotiate remuneration packages which breach its pay code.

Banks that continue to offer unjustifiable sums face being fined by the regulator.

Mr Brown said: "We will ensure that the banking crisis we have experienced over the last two years should never again come at a cost to the taxpayer.

"This means a transformation of the way the financial sector is policed, with banks themselves and not the taxpayer made to pay for bank failings."

Mr Darling said that bankers must start seeing themselves as "fellow citizens" and said some of the bonuses they had received were viewed by the public as "ludicrous".

The Chancellor told the Sunday Telegraph that his bill would give the FSA "powers if necessary to tear up contracts that would result in payments being made that would cause instability".

The new rules will come into effect next year if the Bill completes its passage through Parliament before the election - which must be held by June 3.

It will affect all new contracts.

They will apply to all UK banks, including RBS, Lloyds, Barclays and HSBC as well as the UK operations of global investment banks like Goldman Sachs.

A Conservative Party spokesman said: "The Government has endlessly chased headlines by promising to act on bankers' bonuses - we will see whether they have been successful later this year when we see the bonus round."

Damien Pearse, Sky News Online  

15 October 2009