CHANCELLOR George Osborne's challenge to Europe's cap on banker bonuses faces rejection by the EU Court of Justice after it was dismissed by the court's legal adviser.

Ministers argue the rules limiting pay-outs to no more than 200 per cent of basic salary encourage banks to raise fixed pay instead, increasing business risks.

The UK challenged the proposals on a number of grounds, arguing the EU had gone beyond its remit and breached a series of legal principles.

However, Advocate General Niilo Jaaskinen said: "The UK's pleas should be rejected and the Court of Justice dismiss the action".

It is expected to deliver its ruling next spring.

A Treasury spokesman said: "The Government notes the Advocate General of the European Court of Justice's opinion on our legal challenge against the EU 'bonus cap'.

"We are considering the opinion and its implications in detail."

The cap means bankers cannot be paid bonuses of more than 100 per cent, or 200 per cent if national governments decide to allow firms to increase them to this level.

But Mr Jaaskinen said it was not a cap since it was linked to a banker's salary, on which there is no limit to what a bank can pay.