A cap on bankers" bonuses would be lunacy Putting a cap on bankers" bonuses makes it harder for managers to make their cost base more flexible. As with the ill-considered tax on bank bonuses implemented by Labour, it will put upward pressure on salaries - the exact opposite of what should be happening. If the European Parliament gets its way, banks" fixed costs will go up and their variable costs will go down. For this reason, the CBI, representing the banks" industrial clients as well as the banks themselves, has been fighting the European Parliament's proposals tooth and nail. Not to put too fine a point on it, the bonus cap is a piece of economic lunacy that reflects tellingly on why it was a huge mistake giving the pointless hybrid parliament in Brussels any legislative powers at all. It is one thing for our Government to indicate to the banks owned by the British taxpayer, such as RBS, the level of bonuses that it believes appropriate. Or for shareholders to be more actively engaged in the companies they own, and ensure that managers have greater regard for shareholder rights (rights which the European Parliament's plan would actually undermine). It is quite another to pass laws covering all financial institutions, including those with no public shareholders at all. Worse still, European legislation is a one-way street. Bad national law can always be amended or repealed. In Europe, it can't. Manifestly, an issue such as bankers" pay should not be decided by Europe, where it will be added to the "acquis communautaire" - that vast and growing body of laws and regulations which increasingly determines the way Britain is governed, as we've discovered with the horse meat scandal. Much of the acquis is pointless, some of it is absurd - and all of it is undemocratic. Yet it is there for eternity, beyond the reach of national parliaments and democratic accountability. In the fight over the bonus cap, the City is a pawn in a struggle for power by the European Parliament, as it seeks to expand the responsibilities foolishly given to it by Tony Blair in the Lisbon Treaty. But fights like this will happen over and over again. So David Cameron was absolutely right to argue in his historic speech on Europe last month that Britain needs to limit and reverse the flow of power to unaccountable European bodies. During the negotiation process, the Prime Minister needs to find a way to remove the ability of the European Parliament to impose its will on Britain in this way - as it will have ramifications far beyond bankers" pay or the competitiveness of the City as a world financial centre. There is, however, one unintended consequence to the European Parliament's proposals. Institutionally, the City is pro-European. It sees more advantages in the Single Market than I, for one, believe is warranted. The bonus cap legislation will surely change this. Only the most ideologically committed will now argue that it is vital to the City and our financial services sector that Britain should remain part of the European Union. Indeed, the European Parliament may find enacting the cap will make it just a little more likely that Britain will leave the EU. Lord Lamont of Lerwick was Chancellor, 1990-1993