Britain has said it was withdrawing its legal challenge to a European Union limit on bankers' bonuses after its attempt to block the regulation was earlier rejected by an adviser to the EU's top court.
"I'm not going to spend taxpayers' money on a legal challenge now unlikely to succeed," finance minister George Osborne said in a statement.
"These rules may be legal but they are entirely self-defeating, so we need to find another way to end rewards for failure in our banks."
Earlier a legal adviser to the European Court of Justice recommended that the court uphold the European Union's cap on bankers' bonuses after a complaint by Britain.
The EU law limits a bonus to a sum that is no more than a banker's fixed pay, or twice that level with shareholder approval.
The aim is to curb excessive risk-taking in banking that led to the financial crisis.
The adviser to the court, known as the advocate general, found that the limit on banker bonuses was valid and did not restrict the total amount of pay.
Advocate general opinions are non-binding but generally followed at least in part by the court in most cases.
"In his opinion today, Advocate General Niilo Jskinen suggests that all the UK's pleas should be rejected and that the Court of Justice dismiss the action," the ECJ said in a statement.
Britain had argued that the law, which will affect bonuses that are handed out in early 2015, goes beyond the EU's treaty powers by impinging on pay.
