The Bank of England is “fundamentally doing the right thing” with its plans to claw back rule-breaking bankers’ bonuses up to seven years after they are awarded, said Shadow chancellor Ed Balls.

He spoke as reports suggested the Bank of England is set to unveil plans to make badly behaved or incompetent bankers pay back bonuses even if they were given out in shares and have since been cashed in.

The rules will punish bankers whose misbehave or make a significant error, where they cause their firm or department serious financial loss, or where they have failed in risk management.

The MP told BBC Radio 4’s Today programme: “Clearly something went badly wrong in our banking industry in the last 10 or 15 years, and that was partly banks became too big to fail - that was a regulatory problem - partly there was some criminal behaviour, and we’ve seen that most recently, it seems potentially, allegedly, in the case of Lloyds duping the taxpayer.

“But also on pay, it was almost as though if people were doing well they got bonuses, but then when things went badly they didn’t really pay anything back, they didn’t lose, they took a very short-term view.

“And what the Bank of England is saying today is, not only should pay be deferred so you find out whether it has actually worked before you get paid, but also if you fail, the money can then be clawed back.

“I think that is a really important part of the solution.

“I would go further - I would repeat the bank bonus tax to help us fund our jobs programme. I think we also need fairness in taxation at the top, but this is a good thing the Bank of England has done.”

The plans are a good idea in principle, the boss of Barclays said.

Antony Jenkins, group chief executive of Barclays, described the clawback as “extremely useful” and said that recklessness should be punished.

Asked about the plans on BBC Radio 4’s Today programme, Mr Jenkins said: “I believe that banks have to regulate themselves and that that’s why culture is so important, so that banks do the right business in the right way.

“But I also appreciate that the process of clawback can be extremely useful.

“We have applied ourselves, for example, in cases where we have got things wrong.”

Mr Jenkins said Barclays already clawed back the bonuses of misbehaving bankers - usually paid in shares and deferred - but not if they had been cashed in.

He said: “(This) proposal goes beyond that.

“I would say that in principle I support the idea that where there is wrongdoing there should be appropriate punishment.

“If that’s criminal wrongdoing that should be criminal, if it’s recklessness that should be punished also.

“I’m not against the concept of clawback.”

The moves come after a series of scandals such as the mis-selling of payment protection insurance (PPI) and interest rate swaps for small businesses, Libor rate rigging and even money laundering.

As part of an ongoing probe into Libor interest rate fixing, Lloyds Banking Group was this week fined £218 million by UK and US authorities.

The state-backed lender admitted to “shocking” rate rigging practices, including ripping off the Bank of England over its financial life support scheme.

Bank of England governor Mark Carney said such manipulation was “highly reprehensible, clearly unlawful and may amount to criminal conduct”.

Today’s report follows a two-month consultation by the Bank into new clawback rules where there is evidence of employee misbehaviour or significant error, where a firm or business division has suffered a material financial hit, or where there has been failure in risk management.