John McFall MP made a vigorous attack on the decision by lenders to consider paying out big sums soon after some received multi-billion bailouts by the tax payer.

“I think if you look at the issue of bank bonuses and the Chancellor’s proposals for taxing bank bonuses you get the feeling that banks still don’t get it,” said McFall, who chairs the Treasury Select Commitee.

“They’re living in their own little world yet and I think they’ve still got to come out into the real world.”

McFall’s comments highlighted the critical reaction of some banks to the decision of the Chancellor, Alistair Darling, to impose a 50% charge on bonuses over £25,000 in his recent budget. The one-off tax is payable by banks rather than employees. Lenders have claimed it will limit their ability to retain talented staff.

Royal Bank of Scotland chief executive Stephen Hester recently criticised the UK Government’s efforts to influence the bonus policy followed by the bank, in which the taxpayer is acquiring an 84% economic interest.

Giving evidence to a Scottish Parliament inquiry into the banking crisis, McFall told MSPs that there had been clear indications that banks were going to pursue generous policies regardless of what politicians may want.

He told MSPs the Treasury had predicted it would raise £500m through the bonus tax, but it was now expected to net £4bn.

“Why? It’s because banks have said irrespective of what you say we’re paying this out so we’re going to pay the tax on it so there is no change here,” he said.

McFall, who also called for more competition among the auditors of banks, said the attitude of some bankers seemed to be painfully out of touch with public sentiment amid the recession.

Banks appeared to be trying to obstruct changes that were intended to prevent a recurrence of the near meltdown in the sector which was caused by excessive risk-taking by lenders.

“There are powerful forces against us, you can see that with the attitude of the banks at the moment,” said McFall.

“The worry is we’re back to business as usual and that the banking community thinks what happened in the last couple of years was a normal recession and was a blip and that we’re back to business as usual.”

He warned that this was a high-risk approach.

“There is an issue of public anger and resentment and we must have a strategy to deal with that. When public services are tightening, when people are being made unemployed then people will be saying ‘what has it to do with me?’ and I think as politicians we have to take that seriously.

“The public will not tolerate another bank failure. If we don’t get that right, if we don’t have political stability and economic stability, then the social consequences could be quite serious.

“I’ve said to the banks that they are in the last chance saloon. We have to change the system. We can’t afford another bailout.”

Claiming that past pay policies had encouraged excessive risk taking, McFall said the reform process should not be left to so-called experts.

“We’ve got the brightest and the best working in financial services but the brightest and the best made the most spectacular cock-up you could find, so keep that in mind if you want to change the system.”

He said the fact that many banks would require long-term support would give politicians a rare opportunity to “fashion a new system”.

The Government should ensure that this process is informed by a genuine debate about what banks should do, who they should serve and how they should operate that must be opened up to the public.

McFall wants increased competition among banks.

“I’d like to see more credit rating agencies and I’d like to see more audit companies. We need more competition in this market,” he added.

McFall said auditors were not responsible for the business models of the companies whose accounts they vetted.

However, they should share information with the Financial Services Authority to increase the regulator’s effectiveness.