The UK has not abandoned its battle against an EU cap on bankers’ bonuses, including it in a list of regulations it says do not work.

The Bank of England included the bonus cap in its recent response to an EU review of rules put in place since the financial crisis.

Leading the review is Lord Hill, the bloc’s commissioner for financial services, who is also a British Conservative.

The bank said the cap, which limits bankers’ bonuses to 100 per cent of their salaries, has had the unintended consequence of increasing fixed pay and limits the ability to claw back bonuses in the event of wrongdoing.

“The UK believes that variable remuneration [bonuses] should constitute a substantial portion of overall pay in order to ensure that a meaningful amount of pay is at risk,” the BoE says. “The bonus cap is counter-productive as it reduces the scope for effective risk adjustment to incentives . . . and reduces flexibility in banks’ cost bases.”

UK politicians and policymakers are grappling with how a draft “new settlement” with the EU – published this week and which aims to redefine the relationship ahead of the referendum – would protect the City from euro zone financial regulations.

The UK has the largest proportion of bankers with salaries over €1 million, according to EU statistics, and has often clashed with Brussels over the bonus cap. The UK eventually abandoned a legal challenge in late 2014.

The UK has not yet said whether it will comply with an extension of strict bonus rules to smaller companies and asset managers, which has been delayed until next year.

"The Bank of England is maintaining its view that the bonus cap doesn't work," said Alexandra Beidas, from Linklaters, a law firm. "Most of the City are hoping the BoE's recent comments indicate it will choose not to extend the cap."

The cap is just one of 19 elements of regulation the bank thinks Lord Hill should review. Other issues include how an element of risk is measured for insurance regulations known as Solvency II, and the deposit guarantee programme, which is set in euro: the UK implemented a lower limit of £75,000 because of the appreciation of sterling.

There are questions over whether the Bank of England responses will lead to a reassessment of the bonus cap and other rules. Lord Hill said the exercise aimed to gather “granular” examples of problems with rules and was not an opportunity to refight old battles.– Copyright The Financial Times Limited 2016