Britain to compensate troops over Cyprus bank tax

photo source: AFP

"For people serving in our military, for people serving our government out in Cyprus -- because we have military bases there -- we are going to compensate anyone who is affected by this bank tax," Osborne told BBC television.

A Treasury spokeswoman confirmed that the compensation will apply only to government and military employees and not the wider British expatriate community in Cyprus, which numbers tens of thousands of people.

The announcement comes after media reports that around 3,500 British military and civilian personnel would be affected by the unprecedented tax on savings that is being levied as part of Cyprus's bailout by the European Union.

It is the first time private savers have been asked to help foot the bill for a eurozone bailout, with depositors facing a one-off tax of up to 9.9 per cent of their savings.

Around 3,000 British troops are based at two military bases in the former British colony, which are used as a strategic foothold in the Mediterranean.

Foreign Secretary William Hague said the total amount needed for the compensation was not yet known.

"We are working on the details of that this weekend, so we will be able to make further announcements during the week," he told the Sky News TV channel.

"What you're looking at here, as I understand it, is five or six billion euro coming from the banking system -- from bank deposits," he added.

"Then there's another 10 billion euro that comes from eurozone countries bailing out Cyprus -- and the UK is not part of that, so we have separated Britain from having to take part in those bailouts."

Osborne stressed that people who bank with Cypriot banks in Britain would not be affected by the tax.

Cyprus gained independence from Britain in 1960 but the bases, covering 254 square kilometres (98 square miles) of the island, remain sovereign British territory.

Britain's continuing military presence on the island is resented by many Cypriot residents and the bases have been the subject of sporadic protests over the years.