And the European Parliament is expected to call for performance fees for fund managers to be scrapped in another move to end high pay even at the cost of hitting good performance in finance.
Senior Bank of England officials including governor Sir Mervyn King are known to oppose the bonus cap proposals, arguing that Britain has gone a long way towards ensuring bonuses reflect good performance, and also that excessive pay is a symptom of other problems that need to be tackled more urgently.
And now it looks like the cap is going to affect tens of thousands of City workers, far more than had previously been expected.
Initially Brussels proposed capping bonuses at the same level as salaries for senior bankers.
But it quickly became clear all code staff – thousands of workers who take risks at City firms and so have to be approved by the regulator – would also be hit, taking the cap well beyond banks and into hedge funds and other firms.
And on Friday it emerged the European Banking Authority wants all staff earning above €500,000 (£423,000) to be affected, expanding its scope to cover tens of thousands more City workers.
Sir Mervyn has made it clear he believes excessive pay is a symptom of an uncompetitive banking system where lenders are given a boost by the implicit guarantee of government support when a bank gets into trouble.
As a result, removing this prop should reduce profits and pay, so targeting pay in this way is unnecessary.
And Prudential Regulation Authority head Andrew Bailey has stressed that increased use of shares in payouts and the use of clawback when things go wrong has ended rewards for failure, but that good work could be unwound by the cap.
The new extension of the cap to cover such a large number of workers is now expected to increase the opposition from the Bank, as the damage caused by the cap becomes more widespread.
Meanwhile the European Parliament wants to stop performance fees being paid to fund managers.
Its next round of proposals to regulate the sector come out on Wednesday, and managers’ group New City Initiative believes a ban may be proposed.
EU RULES: WHAT IS HAPPENING TO CITY PAY?
■ Brussels wants to cut bonuses, arguing high pay promotes high levels of risk taking in finance
■ In banking that could see bonuses capped at the same level as salaries, or at twice the salary if shareholders agree
■ It was originally expected to hit those at the top of the industry, like big traders and executives
■ But now it seems anyone earning above €500,000 will be affected – tens of thousands of City workers
■ Critics say bonuses are vital as they disappear in bad years, allowing banks to cut costs without firing workers
■ So with a cap basic pay is likely to rise and more jobs will be lost in recessions
■ Much work has already been done on pay, increasing share payouts instead of cash bonuses, and clawing back payouts if performance deteriorates in subsequent years. But that would be undone by a cap.
■ The European Parliament is also set to target fund managers
■ They may be banned from charging performance fees
■ That means managers receive the same income no matter how well they perform, reducing the incentive to work hard and boost investors’ incomes