Labour is facing a backlash after saying it will not scrap former Tory prime minister Liz Truss’ decision to lift the cap on bankers’ bonuses.

       Defiant shadow chancellor Rachel Reeves told the BBC that the party “does not have any intention of bringing that back”.

       Sir Keir Starmer’s top ally said that while the cap on bonuses was “the right thing to do to rebuild the public finances […] that has gone now and we don’t have any intention of bringing that back.”

       “And as chancellor of the exchequer, I would want to be a champion of a sucessful and thriving financial services industry in the UK,” she added.

       It comes as Jeremy Hunt is understood to have warned Rishi Sunak’s cabinet that tax cuts in the upcoming 6 March Budget are likely to be smaller than they were in the autumn statement.

       Strict regulations on bonuses, which limit annual payouts to twice a banker’s salary, were introduced by the EU in 2014 in a bid to avoid excessive risk-taking after the 2008 financial crisis.

       Former prime minister Liz Truss and chancellor Kwasi Kwarteng made the decision to scrap the cap on bankers’ bonuses in 2022, as a means to encourage global banks to create jobs, invest and pay taxes in the City of London.

       Mr Kwarteng said the bonus limit was pushing up basic salaries and driving activity outside Europe.

       Sir Keir Starmer had previously vowed to curb bankers’ bonuses by reinstating the cap back in 2022. At the time, he said: “Removing the cap on bankers’ bonuses when people are really struggling to pay their bills shows the Tories are absolutely tone deaf to what so many people are going through.”

       After coming into effect last year, the decision faced a backlash for rewarding bankers and failing to address the cost-of-living crisis facing households across the UK.

       Trade unions have also called for the cap to be reinstated, with the TUC declaring that the removal of the cap was fuelling a “greed is good” mentality.

       The four big banks, HSBC, Lloyds, Natwest, Barclays paid an estimated ￡4 billion in bonuses in 2021, and an estimated 3,000 UK bankers earn more than ￡1m per year.

       The decision is the latest u-turn by the party under Sir Keir’s leadership, and comes just months after Ms Reeves said scrapping the bonus cap “tells you everything you need to know about this government”.

       It comes amid mounting speculation the party is set to finally ditch its ￡28bn a year green spending pledge, having previously watered down the commitment.

       Sir Keir has also u-turned on pledges to abolish tuition fees and bring rail, mail, water, and energy back into public ownership. Sir Keir has said the railways would still be nationalised under a Labour government.

       But the decision on bankers’ bonuses is yet another signal from the Labour leader the party has fully parted with the left-wing influence of former leader Jeremy Corbyn.

       Mr Corbyn was heavily critical of bankers, calling them “speculators and gamblers” who crashed the economy in 2008. He seized on Ms Reeves’ decision, describing it as a “political choice to enrich the wealthy”.

       The ex-Labour leader contrasted it with the party’s refusal to commit to scrapping the two-child benefit cap, which he called “a political choice to impoverish the worst-off”.

       The general secretary of the Fire Brigades Union (FBU), Matt Wrack, called Labour’s policy on bankers bonuses “utterly daft”.

       Posting on social media, Mr Wrack said: “This of [sic] an utterly daft approach from Labour. Tackling abuse by wealthy bankers would be a popular move and a vote winner. The desperation from Starmer’s team to win approval from the people who run the finance industry is appalling”.

       Ms Reeves comments appear to be timed to coincide with a Labour conference with business chiefs on Thursday, where the party will seek to convince business that their investment is safer under a Starmer government than it is with the Conservatives.

       Driving economic growth is a core mission of Starmer’s Labour, and the leader has pledged to make the UK the highest-growing economy in the G7.

       Mr Starmer and Ms Reeves have been heavily courting businesses up and down the country over the past two years to gain their support in the hopes of driving domestic investment.

       Mick McAteer, co-director of the Financial Inclusion Centre and a former board member of the Financial Conduct Authority, has told the BBC that the party was “going too far”.

       “It seems to have forgotten the mistakes of the previous Labour administration which allowed finance to become too dominant, leaving the UK one of the most exposed global economies when the devastating 2008 crisis came.

       “Ordinary people and the UK’s public services are still paying the price for that failure,” he said.

       “The City finance lobbies are very vocal at promoting the benefits of the sector. The City doesn’t need another champion in Labour,” Mr McAteer added.

       The row comes as it emerged that Mr Hunt now believes tax cuts will have to be smaller than at his autumn statement – when national insurance was slashed by 2p.

       The chancellor, in comments first reported by The Times, told colleagues: “We are not likely to have as much room for tax cuts as we had in the autumn.”

       During his economic analysis, Mr Hunt is said to have highlighted how the US, France and Germany are all more productive than the UK.

       The comments come after the International Monetary Fund (IMF) on Tuesday warned further tax cuts could risk the government’s ability to invest money in the NHS and other vital services.

       Health minister Dame Andrea Leadsom, asked on LBC whether she wants to see further tax cuts, said it is the chancellor’s ambition to “enable people to keep more of their hard-earned cash”. She said: “I think there is no denying that tax cuts enable, facilitate economic growth.”

       Some backbenchers within the Labour party are also unhappy with the leadership’s latest u-turn.

       Clive Lewis, MP for Norwich South told the Independent that “a lot of people will be disappointed” because “bankers bonuses, and the caps on them, weren't just a policy implemented because of what happened in 2008”.

       He said: “There was also an element of social and economic justice in what people perceived to be fair, which was that bankers, who had trashed the economy, who were then bailed out by the taxpayer, who were responsible for the 2008 crash and all that came with that, should see limits to the amount of wealth that they could extract from the British economy.”

       He added: “If in government, Labour has a historic chance to show the country we will do things differently, acting in the best interests of everyone - not just the already wealthy."

       Barry Gardiner, MP for Brent North, also told the BBC’s Politics Live that he “disagreed” with the decision and would “like to see [the cap] still there”

       “I think actually one of the things we do see in society is the gap between the very richest and very poorest is growing day by day.

       He added: “I want to see a society that comes together that doesn’t have people struggling to keep the light on in their own home.”

       Westminster leader of the SNP, Stephen Flynn, also criticised Labour’s policy:

       During PMQs, he said: “When the Tories scrapped the cap on bankers’ bonuses in the autumn during a cost of living crisis, the Labour Party opposed it.

       “Yet here we are just three months later, and the Labour Party support scrapping the cap on bankers’ bonuses.

       “Is the prime minister comforted by the fact that he’s now no longer alone in this house in being completely out of touch with public opinion.”