Alistair Darling is expected to exact a high price from Lloyds if he allows the bank to escape from its proposed participation in the government’s toxic asset scheme to insure assets worth £260bn.

The chancellor’s allies have made it clear that even if Lloyds does manage to raise £25bn and satisfies the Financial Services Authority stress test, the chancellor could still block the bank’s so-called “Plan B”. Mr Darling holds a strong negotiating hand, knowing that Eric Daniels, Lloyds’ chief executive, is desperate to reduce government involvement in his bank.