George Osborne has promised to fight an "anti-business culture", warning that the row over bonuses and pay threatens to undermine jobs and prosperity.
MPs have been debating a demand by Labour for "excessive" rewards for City executives to be reduced.
But in a speech to small business leaders the chancellor said "rewards for success" should be maintained.
Last week, Royal Bank of Scotland boss Stephen Hester gave up a bonus worth almost �1m amid public outcry.
This followed the announcement that the bank - of which 82% is owned by taxpayers - was laying off 3,500 staff around the world.
On Monday, Sir David Higgins, the chief executive of Network Rail, said he would turn down a bonus of up to �340,000, which would have been awarded, despite the company failing to meet some performance targets.
'Trust'In the Labour-led debate in the Commons, shadow business secretary Chuka Umunna dismissed suggestions his party was being "anti-business".
He said: "The public rightly expects that the culture of excessive bonuses must stop. That means bank executives' remunerations - stated to be 'performance-related' - should be just that, related to performance.
"Very large bonuses should only be paid to reflect genuine exceptional performance if trust in the system is to be maintained."
In a speech in London to the Federation of Small Businesses, the chancellor said: "Of course we need to reform our banking system and nobody has done more than this government to address the too-big-to-fail problem that so offends every taxpayer.
"Of course rewards for failure are unacceptable - and those who believe in the free market are the first to say so.
"But a strong, free market economy must be built on rewards for success.
"There are those who are trying to create an anti-business culture in Britain - and we have to stop them. At stake are not pay packages for a few but jobs and prosperity for the many."
In a letter to RBS staff, Mr Hester said press coverage of his bonus had been "discomforting to say the least", but insisted the bank was "making progress in the face of a difficult inheritance".
Source: http://www.bbc.co.uk/go/rss/int/news/-/news/uk-politics-16937804
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