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UPDATE 3-Lloyds bonus, govt rhetoric stoke bank bonus row

Published 01/12/2011, 10:25 AM

* Fresh blow to government efforts

* UK PM Cameron says winning battle with banks

* But says can do little to dictate RBS bonuses

(Adds context, details)

By Steve Slater and Matt Falloon

LONDON, Jan 12 (Reuters) - Britain's bank bonuses row flared into new life on Wednesday as a report the boss of bailed-out British bank Lloyds will take a 2 million pound ($3.12 million) bonus collided with a government pledge to curb payouts. The Conservative-Liberal Democrat coalition government is struggling to clamp down on banker pay and quell trade union and public anger over perceived excesses in a sector that needed significant state support during the credit crunch.

"What we all want to see is the banks paying more in tax, and we will see that. We want to see the banks doing more lending, and we will see that. We want to see bonuses cut, and we will see that," Conservative Prime Minister David Cameron told parliament.

The average wage in Britain was 25,879 pounds last year and many families are facing increasingly expensive shopping and household bills as well as gloomy economic conditions, limp wage growth, higher taxes and big government spending cuts.

Accused of talkijg tough but not doing enough by opposition Labour politicians, Cameron admitted his government could do little to dictate bonus pay at majority state-owned bank RBS.

The contract negotiated between RBS and the previous Labour government allows for bonuses at market rates this year.

A BBC report on Wednesday that Eric Daniels, who steps down as Lloyds CEO in March, will take a bonus was a further blow for the coalition.

Labour, the trade unions and many voters want to see the banks contribute more in tax and to stop dishing out lavish bonuses as pay back for their role in triggering a financial crisis which drove Britain into an 18-month recession.

Barclays CEO Bob Diamond said on Tuesday it was time for the banks to stop saying sorry for the credit crunch.

DANIELS IN LINE FOR BONUS

While the economy has recovered in the last year, it is expected to slow markedly at the start of 2011 as the coalition's austerity drive to tackle a budget deficit running close to 10 percent of national output starts to bite.

As part of those measures, public sector workers have been told to take a two-year pay freeze.

Daniels receives 1.035 million pounds in base salary. He can receive up to 225 percent of his base salary in annual bonus -- potentially taking his annual pay to 3.4 million pounds -- plus awards under a long-term share scheme.

The BBC, citing people close to the bank, said Daniels will be awarded close to 2 million pounds by the board and get long-term share awards worth more than 2 million pounds more.

Lloyds, which is 4ÿ1 percent owned by the UK government, declined to comment. The bank reports 2010 results on Feb. 25.

A source close to the bank said no decision had yet been made on Daniels' bonus.

The American banker has waived his bonus for the last two years, but the BBC said it was inconceivable he will turn it down this year, citing the people close to the bank.

The row over pay has dominated headlines in the last week after a report that Stephen Hester, CEO of RBS, was set for a 2.5 million pounds bonus.

The government is attempting to get banks to agree to boost lending to small business as part of its talks over restraining pay, under discussions dubbed "Project Merlin".

Finance minister George Osborne has said all options were on the table if those efforts failed, although Labour demands for a return of last year's one-off bank bonus tax are seen as unlikely to come to fruition.

Spain's Santander, one of the biggest UK mortgage lenders, said it may not participate in the collective plan, signalling a deal is far from being agreed. (Editing by David Cowell) ($1=.6412 pounds)

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