Everywhere I go in Britain, I sense and share the anger and dismay of millions of hard-working people who have watched in disbelief during a year in which irresponsible practices in global banks have brought the world's financial system close to collapse.

Because this has had an impact on every high street and in every home in Britain, anger alone is not enough - only bold action to protect those endangered through no fault of their own will do.

That is why we took unprecedented steps last October to stop the collapse of banks. The recapitalisation programme was not to subsidise bankers; it was to ensure that no depositor or saver lost money. And because of the impact of bank failure on the wider economy, we also cut taxes and brought forward crucial public investment to put more money in people's pockets. In January we announced the next stage of the plan, designed to increase bank lending and get finance flowing round the economy again. We will be setting out more details of this next week.

But as a condition for putting taxpayers' money into banks, we must also take action to end the old short-term bonus culture - the one-way bet culture - that encouraged banks to make reckless decisions. People want free markets, not value-free markets. And I am certain that the values we celebrate in society - hard work, entrepreneurialism and responsibility, not irresponsible short-termism, must underpin the future of our financial sector and its rewards.

So there are four principles of fairness that we will apply to banking from now on.

First, there must be no reward for failure. In practice this means that anybody associated with a loss cannot receive a bonus. That's not a special system designed to punish the bankers, but normal commonsense business practice.

Second, there should be no bonuses in the future unless they are based on long-term sustainable performance. The incentives available should be for long-term wealth-creating, not short-term deals.

Third, the right of clawback. Bonuses are not just about past performance but are designed to shape future performance. We have imposed claw-back clauses in RBS contracts to be used if performance is not sustained or employees leave before the consequences of their activities fully feed through.

And fourth, the regulator has said that it will take into account a bank's pay and bonus structures when supervising a bank.

None of these actions is designed to punish or scapegoat City workers. I am clear that London's role as a great world city is due partly to the dynamism and diversity of its financial workforce. I am clear too that bonuses can play an important role in attracting the best talent and in motivating staff, including those on modest incomes who work so hard, do so much to help a bank's customers and contribute to the overall profitability of a bank over many years.

But we must also be clear that the old excesses, the one-way bets, have to be consigned to the past. No bank can return to the old days when an irresponsibly high fee from a short-term deal could be paid to staff in immediate cash bonuses with no consideration of its future impact on the bank's financial health.

So last October the four top executives of RBS and HBOS were removed without compensation and we insisted on there being no cash bonuses for board members of failing banks such as RBS. Seven further members of the old RBS board have now lost their jobs and the HBOS board has been abolished.

From now on, any bonuses paid to individual RBS staff will be subject to claw-back if future performance is poor and there will be no discretionary cash bonuses paid this year. All legal commitments have been subject to thorough and independent scrutiny and only those where the bank has no option will be honoured.

We will now seek to agree a fair package for staff at Lloyds-TSB/ HBOS, the other bank in which the Government has a share, based on the same principles and taking into account its own performance.

For the longer term, much in the City has to change. In the next few weeks the Financial Services Authority will publish the review of financial regulation commissioned by Alistair Darling and the Government will publish its response and the changes that will have to be made.

We have asked Sir David Walker, a former director of the Bank of England, to examine the changes we must make in how banks are governed to ensure that they do not repeat these mistakes.

I am certain that the values we celebrate in society - hard work, entrepreneurialism and responsibility not irresponsible short-termism - are the values that must underpin the future not only of our financial sector but of our economy as a whole. Banks must again become trusted stewards, not speculators, with people's money.

With today's agreement on bonuses, we are taking further steps towards building a successful, competitive and responsible financial sector of the future.

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