Lloyds chief fuels banking row after he rings up a £2.5m bonus

• News that Lloyds' Eric Daniels is to receive a huge bonus sparked claims the government is 'impotent' in battle to rein in banks. Picture: PA

Despite promises by the two coalition parties, the news that Mr Daniels, who is due to retire in March, will be given 2.3 million from a bank that is 41 per cent owned by the taxpayer, left the government looking impotent in stopping massive bonuses in the City at a time when the rest of the country is facing pay freezes, tax rises and cuts to services.

Mr Daniels was seen as one of the key figures in the banking crisis and was forced to go to the government to ask for a multibillion-pound bailout package after he helped push through the takeover of HBOS.

The revelation on his bonus followed indications by the Spanish bank Santander, which owns many of the former UK building societies, will walk away from talks with the Treasury aimed at limiting bonuses.

Two other banking bosses are also set to cash in, including Stephen Hester at Royal Bank of Scotland, which is 83 per cent owned by the taxpayer. The chief executive is expected to be given 2.5m, while his Barclays' counterpart, Bob Diamond, might get up to 9m.

The five big banks are thought to have a total bonus pool of 7 billion to pay to employees at a time when they are being criticised for failing to provide businesses with proper financial support and RBS has been fined 2.8m for failing to deal with more than half of customer complaints properly.

The issue dominated Prime Minister's Questions yesterday in exchanges between Labour leader Ed Miliband and David Cameron.

Mr Cameron told MPs the government wanted a settlement with banks where "their taxes go up, their lending goes up and their bonuses come down". But Mr 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 financial institutions to declare any bonuses of over 1m.

Mr Miliband said the Prime Minister was effectively giving banks a tax cut by implementing a levy expected to raise 1.25bn this year while refusing to extend the bonus tax, which brought in 3.5bn in 2010.

"The country is getting fed up with the Prime Minister's pathetic excuses on the banks," Mr Miliband said in the Commons.

"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.

The government has been locked in talks with the industry to reach agreement on "acceptable" bonus levels since before Christmas.

However, there was concern in the government over the reports that Mr Daniels, who has waived his bonus over the past two years, will receive 2.3m, although Downing street said the figure was "just speculation".Transport Secretary Philip Hammond said: "It is not welcome news. We have made it very clear that we expect the taxpayer- controlled banks to show restraint."

A Lloyds spokeswoman said: "This is speculation. Neither the remuneration committee nor the board has met to consider bonuses for 2010. This will happen after the finalisation of results."