Claims that the chief executive of taxpayer-backed Lloyds bank is in line for a £2m award, defying Ministerial demands for banks to show restraint over bonuses, fuelled angry clashes in the Commons yesterday.
Eric Daniels, who is to leave the bank in March, is reported to be in line for the windfall after waiving any bonus for the past two years.
Cabinet Minister Philip Hammond described the award, which follows claims the Government has backed down in its battle with the banks, as "not welcome news".
Lloyds is 41 per cent owned by the taxpayer after it was bailed out during the financial crisis, when it lost billions. It clawed its way back into profit in 2010 with a 1.6bn surplus at the half-year stage, but Mr Daniels also presided over its ill-fated deal to buy Halifax Bank of Scotland at the height of the meltdown.
David Cameron told MPs at Prime Minister's Questions the Government wanted a settlement with banks where "their taxes go up, their lending goes up and their bonuses come down".
But Labour leader Ed Miliband accused him of failing to deliver on a pre-election promise to restrict bonuses in largely state-owned banks to 2,000 or implement legislation forcing them to declare any bonuses over 1m. And he claimed banks were effectively being given a tax cut with a levy expected to raise 1.25bn this year while the Government refuses to extend the bonus tax, which raised 3.5bn in 2010.
"The country is getting fed up with the Prime Minister's pathetic excuses on the banks," Mr Miliband said. "Can he explain to the British people why he thinks it is fair and reasonable, at a time when he is raising taxes on everyone else, to be cutting taxes this year on the banks. On the banks, the Prime Minister has had eight months to hold them to account, when is he going to start?"
Mr Cameron said he would not "take lectures" from Mr Miliband, who he said had done nothing to improve regulation of the banks when an adviser in the Treasury.
Mocking Shadow Chancellor Alan Johnson for a string of errors with figures in recent interviews, Mr Cameron said: "I know the Shadow Chancellor can't really do the numbers, so there is no point Wallace asking Gromit about this one.
"Last year, the banks paid 18bn in tax. This year they are going to be paying 20bn. Their taxes are going up."