Lloyds Banking Group is due to hand out an estimated £80 million in bonuses for staff as a result of an agreement with the government-owned body that is set to become the bank's biggest shareholder.

The bank, which has received a multibillion pound bailout from the taxpayer, has come to an arrangement with UK Financial Investments (UKFI) on employee bonuses. Under the agreement it is likely that 40,000 junior employees will get cash bonuses of £1,000 each. A spokesperson at Lloyds reiterated that staff receiving the bonuses earn an average of £17,000 a year.

Senior employees, however, will receive deferred bonuses, which are paid out after three years. These bonuses may be clawed back if targets are not met.

Meanwhile, the tax status of the bank's American chief executive Eric Daniels, who is based in London and reportedly earns £1million a year, came into the limelight after it transpired he may have used his non-domicile status to reduce his tax bill.

A statement from Lloyds read: "As chief executive of the Lloyds Banking Group, Eric Daniels lives and works in the UK and pays UK tax on all his earnings here. For most of his career, Eric Daniels worked outside of the UK in a variety of senior banking roles and in a number of different countries. On any earnings that Eric Daniels may have from countries other than the UK, he pays the appropriate level of tax in that country."