On the day before the state-owned bank reports losses, expected to be in tune of about £6.5bn, Chancellor Alistair Darling yesterday cleared the payment of £1.32bn in bonuses to the staff at Royal Bank of Scotland, in what appears to be a visibly politically contentious decision.

Although RBS is expected to state that it provided £80bn of new loans last year, its net lending may not somehow find its way to a positive side, with business customers having repaid debts at higher rates than in the past.

Mr. Darling believes that “RBS's plan strikes a balance between the need to maintain key staff at the bank, and calming public anger over the payment of any bonuses at a loss-making bank that survives due to taxpayer support”.

Vincent Cable, Liberal Democrat treasury spokesman, says, “It is impossible to see how large bonuses can be justified for senior executives in the public sector banks, when their banks are losing money, depend on the taxpayer and are failing to meet lending agreements”.

The Treasury confirmed that RBS and Lloyds Banking Group have failed to increase net lending in line with agreements signed as a condition of receiving taxpayer support.