MINISTERS’ demands for banks to show restraint in this year’s bonus round look set to be defied by taxpayer-backed Lloyds, with a £2m award for its chief executive.

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 said the award, which follows claims that the Government has backed down in its battle with the banks, was “not welcome news”.

Mr Daniels is entitled to a £2.3m maximum bonus, set at 225% of salary, but any payout of that order will fuel anger over bank handouts.

The Government is under pressure to enforce restraint on lavish banker bonuses this year – particularly within partially state-owned Lloyds and Royal Bank of Scotland. David Cameron told MPs that 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 financial institutions to declare any bonuses over £1m.

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

But there are concerns that the industry is planning a return to mammoth bonuses, totalling an expected £7bn this year, after two years of limited handouts and last year’s bonus tax.

Earlier this week, Chancellor George Osborne confirmed the Treasury was in talks with the banks on a settlement designed to deliver smaller bonuses, increased lending and greater transparency on pay.

He warned banks of possible penalties if they fail to reach agreement within the next few weeks, insisting that “nothing is off the table”.