According to the financial newspaper, Chancellor Alistair Darling is expected to waive the interest on Lloyds’ taxpayer loan, which could save the group £480million a year.

In return, reports suggest that Lloyds Banking Group could be tied to a promise over mortgage finance and lending to small businesses.

The £480million annual interest could disappear if, as reported, the Government swaps its £4billion in Lloyds preference shares for another type of equity that does not incur interest.

The rumoured move would follow similar restructuring announced by fellow troubled bank RBS, where the Treasury agreed to swap its £5billion preference shares for ordinary shares, thus reducing the taxpayers’ stake in RBS from around 70 per cent to 58 per cent.

In addition, both Lloyds and RBS are expected to place billions of their toxic assets into an insurance scheme expected to be announced by the Government soon.

Both banks are due to announce their 2008 results later this week, when their restructuring plans are expected to be revealed.

© Fair Investment Company Ltd