Pay cut for chiefs who run state banks

The reductions apply to all seven members of UKFI's board and will take effect from this month, UKIF said in its annual report.

"All members of the board have volunteered to take a 5 per cent reduction in remuneration in response to the Government's commitment to cutting the cost of the public sector," UKFI chairman David Cooksey said.

UKFI also said it had helped prevent a 12bn increase in the state's bank holdings last year by advising the Government on alternatives to a taxpayer-funded insurance scheme aimed at protecting rescued lenders against rising bad debts.

Lloyds Banking Group, which would have seen its government stake rise by nearly a third if it had joined the programme, opted to raise extra capital from shareholders instead.

UKFI was set up in 2008 to manage stakes in Lloyds and Royal Bank of Scotland, acquired by the Government in return for 37bn of financial assistance. It currently holds 41 per cent of Lloyds and 83 per cent of RBS.

It has since also taken responsibility for managing nationalised lender Northern Rock and the loan book of failed mortgage bank Bradford & Bingley.

UKFI, which aims to sell its banking stakes at a profit but has set no timetable for disposals, said the bailed-out lenders were showing signs of returning to health.

"Our investee companies are starting to benefit from external economic factors and from the actions their management have taken," it said.

UKFI's total wage bill for the year to March 31 2010 was 1.96m, compared with 388,000 in the six months to March 31 last year. UKFI, which has the right to block bonus arrangements at the banks it oversees, awarded 198,000 in staff bonuses for the year to November 2009, but held back all but 75,000 of it in line with its three-year deferral period.

UKFI chief executive Robin Budenberg, who joined in January, is not participating in the organisation's bonus scheme.