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Osborne issues Cyprus levy pledge
People queue to use an ATM machine outside a Cyprus bank after learning their deposit accounts are to be taxed (AP)
Chancellor George Osborne has said the Government will compensate any British Government and military personnel whose bank accounts in Cyprus may be affected by the European Union bailout levy.
European officials said people with less than 100,000 euro (£87,000) in their accounts will have to pay a one-time tax of 6.75% while those with more money will lose 9.9%.
Speaking on the BBC's The Andrew Marr Show, Mr Osborne said: "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, people who are doing their duty for our country in Cyprus will be protected from this Cypriot bank tax."
The assurance comes after speculation that about 3,500 British military personnel in Cyprus would face having their savings snatched.
Mr Osborne credited Prime Minister David Cameron for ensuring Britain is not part of the bailout and alluded to statements posted on the websites of Bank of Cyprus UK and Laiki Bank UK assuring UK customers that their deposits would not be affected by the levy.
He said: "First of all, that is an example, in Cyprus, if you don't show the world that you can pay your way. That is why in Britain we've got to retain the confidence of world markets. What I'd say specifically about the Cyprus situation - first of all, we are not part of the bailout because David Cameron got us out of these euro bailouts when he became Prime Minister. Second, I'd say that the Cypriot banks in Britain - this is important because there are many thousands of people who bank with Cypriot banks in Britain - those banks are not going to be included in this bank tax."
Mr Osborne also called on people who despair at the UK economy to look at what is going on in Cyprus and realise that economic difficulties are widespread. "Anyone who thinks Britain is alone in having these challenges should look on their TV screens, look at tonight's news, realise that it's a very tough economic situation out there," he said.
There are 59,000 British residents in Cyprus and 1.1 million Britons visit the island every year, the Foreign Office said.
Foreign Secretary William Hague said the amount of money required to compensate British personnel was not yet known. He told the Murnaghan programme on Sky News: "People who are serving in our military or people who work for the British Government and have been posted to Cyprus - we will compensate them. We are working on the details of that this weekend, so we will be able to make further announcements during the week about that. What you're looking at here, as I understand it, is five or six billion euro coming from the banking system - from bank deposits. 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.
"However, of course where people have no choice but to be in Cyprus - that is the case for the military serving in sovereign-based areas, where they have no choice but to be there - we do have to look after those people. I think people would understand that, but the expenditure involved - which of course we don't know immediately what that expenditure would be - but it would be nothing comparable to taking part in the bank bailout as a whole."