LIZ Truss and her chancellor are facing a growing backlash to a “politically toxic” plan to remove the cap on bankers’ bonuses while the country endures a cost-of-living crisis.

Kwasi Kwarteng and his Treasury officials are considering the move as a way of boosting the City of London, the Financial Times reported.

The SNP said the proposal was "shameful" given the financial pain being felt by millions.

The cap, which limits annual pay-outs to twice a banker’s salary, was imposed by EU legislation in 2014 in response to the 2008/9 financial crisis.

Mr Kwarteng is reported to be considering its removal as part of a post-Brexit overhaul of financial regulations intended to make London more attractive to global banks. 

Sources told the FT that Mr Kwarteng wants to boost the City’s competitiveness against New York, Frankfurt, Hong Kong and Paris, which have tax incentives to attract top bankers.

One financier told the paper that scrapping the bonuses cap was a “clear Brexit dividend. Something you can present as a win.”

Mr Kwarteng, who wants the Treasury to focus "entirely on growth", told City bosses last week: “We need to be decisive and do things differently.”

Advocates say the bonus cap has added to the fixed costs of banks in the EU, as they have had to increase salaries to make up for limited bonuses.

The proposal emerged as Mr Kwarteng finalises next week's emergency mini-budget in response to the cost of living and energy bill crisis.

He is expected to follow through on the Prime Minister’s Tory leadership promise to cut national insurance and scrap a planned rise in corporation tax, measures costed at around £30billion.

Although no decision has yet been made on bonuses, opposition to ending the cap has been swift, with warnings it could incentivise reckless behaviour.

It is also hugely risky politically against the backdrop of families struggling to make ends meet this winter.

When he was PM, Boris Johnson was forced to deny planning to lift the cap, after he faced a backlash for reportedly considering the move in June.

UK Labour leader Sir Keir Starmer today accused the Chancellor of plotting “pay rises for City bankers, pay cuts for district nurses”.

Economist Andrew Sentance, who was a member of the Bank of England’s Monetary Policy Committee during and after the financial crisis, told the BBC: “It sends a rather confused signal when people are being squeezed in terms of the cost of living and the Government is trying to encourage pay restraint in the public sector.

“So to appear to allow bankers to have bigger bonuses at the same time doesn’t look very well timed.

"There may be some longer-term arguments for pursuing this policy, but I think the timing would be very bad if they did it now.”

Luke Hildyard, the executive director of the High Pay Centre think tank, said removing the cap would be an “ideological measure” that favoured the rich.

He said: “The bonus cap has probably helped to contain bankers’ pay awards but they’ve still reached record highs this year while the rest of the country has undergone an epic cost-of-living crisis and profound economic hardship.

“We know that bonuses in the financial services sector have helped the richest 1 per cent of the population to capture an increasing share of total UK incomes.

“Removing the cap would be a pro-rich ideological measure that sends a depressing message about who policymakers listen to and think about when making economic policy.”

TUC general secretary Frances O’Grady said City bonuses were already vast. 

She said: “While City executives rake it in, millions are struggling to keep their heads above water. Working people are being walloped by soaring prices after the longest and harshest wage squeeze in modern history.

“The chancellor’s number one priority should be getting wages rising for everyone - not boosting bumper bonuses for those at the top.”

Lionel Barber, a former editor of the Financial Times, suggested the move was being driven by Brexit weakening the City of London in the first place.

He tweeted: “If you no longer have friction-free access to the EU’s single market in financial services, you will be tempted to lift the cap on bankers’ bonuses to compensate the City of London. Doesn’t feel like a game changer and at this moment, it’s politically toxic. Welcome to Brexit!”

However Julian Jessop, of the free market Institute of Economic Affairs, said axing the cap would not have a big impact, but would send a “positive signal”.

He said the ‘pay rises for bankers, pay cuts for nurses’ narrative was “lazy”.

He tweeted: “Allowing commercial banks to pay some of their staff more will have no impact on public sector pay, except perhaps a positive one (more tax revenues).

“There are also much better ways to discourage excessive risk-taking in the City, incl. long-term incentive schemes.

“I think politicians should do what is right (and explain why it is right), not what is popular.”

Mr Kwarteng, who wants the Treasury to focus "entirely on growth", told City bosses last week: “We need to be decisive and do things differently.”

SNP MP Alison Thewliss said: "If true, these shameful plans show once again that the Tories are more interested in putting more money into the pockets of their friends and donors in the City while turning their backs on ordinary households struggling across the UK.

"The Tory-made cost of living crisis is spiralling out of control - with people being burdened with unmanageable levels of debt due to rocketing bills and food prices. 

"Instead of delivering real and targeted support to protect households, the Tory government has instead sat on its hands and looked the other way. 

"While bankers rake in more money and energy companies make billions in excess profits, the only measure announced by the UK government for people is a multi-billion pound 'Truss Tax' on households and small businesses that will saddle them with years of debt.

"Westminster's failure is in stark contrast to the targeted plans being delivered by the SNP Scottish Government, which is benefiting low and middle income families by increasing the Scottish Child Payment to £25 per child per week, freezing rents, freezing rail fares, and expanding universal free school meals.

"Scotland is an energy-rich country. If the new Prime Minister and Chancellor are more intent on helping bankers and forcing families to pay the price of this Westminster crisis they will prove, yet again, that independence is the only way to keep Scotland safe and build a fairer, more prosperous future."