The Conservatives' George Osborne must be right. Britain's government should impose a cap on bankers' bonuses. But wait a minute, Hector Sants surely has a point when he counters it is not the job of financial regulators to fix pay rates. Politicians in London and beyond are struggling to square the circle.

The shadow chancellor has been shouting loudly about the return of inflated pay packages and bonuses in financial institutions still propped up by taxpayer guarantees. Quite right. Banks have inflicted heavy costs on the rest of society but, rescued by governments, they are returning to the bad old ways.

Now listen to Mr Sants, the chief executive of the Financial Services Authority. The FSA's role, he says, is to prevent excessive pay awards from destabilising financial institutions. The authority's new rules will damp incentives for short-term risk-taking and ensure that multi-billion-pound bonus pools are backed by adequate capital.