Kwasi Kwarteng wants to scrap the cap on bankers’ bonuses in a bid to make the City of London more globally competitive.
The new chancellor is reported to be considering the move as he steps up government attempts to boost economic growth.
However, ending the cap - which was introduced in 2014 by the European Union - is likely to draw fierce criticism from the government’s political opponents.
The cap limits the amount bankers can receive in bonuses to twice their annual salary.
Its supporters say it is necessary to prevent bankers taking unnecessary risks like those which led to the 2008 financial crash in order to pocket huge bonuses.
But the Conservatives have long argued that the cap hampers the UK’s attempts to attract the best global banking talent.
Former prime minister Boris Johnson was in favour of ending the cap, but feared a huge political backlash if his government went ahead with it.
When the idea was first proposed in June, Labour leader Keir Starmer described it as “pay rises for bankers, pay cuts for district nurses”.
But according to the Financial Times, Kwarteng has told City bosses: “We need to be decisive and do things differently.”
The new chancellor will unveil his plans to boost economic growth in a mini-Budget when parliament sits again next week following the period of national mourning for the Queen’s death.
He will confirm that the government is ending the rise in national insurance payments, as well as scrapping plans to increase corporation tax.
The government has already courted controversy by refusing to bring in a fresh windfall tax on the excess profits being enjoyed by energy firms as a result of the war in Ukraine.
Ursula von der Leyen, the European Commission president, yesterday announced that the EU would be bringing in its own windfall tax so the firms’ huge profits can be “shared and channelled to those who need it most”.
Kwarteng has already courted controversy in his short time as chancellor by sacking the Treasury’s top civil servant, Tom Scholar, on his first day.