The government yesterday publicly hardened its position on bank executive bonuses saying it will be "very, very robust" in clamping down on bonuses for 2008 in banks in which it holds shares. It will only allow modest payments for clerks earning around £20,000 a year.

It came as David Cameron said he would cap all 2008 bonuses at £2,000 for staff in banks owned or partly owned by the government. He also said the government should be willing to sue any bank executive who insisted their contract entitled them to a large bonus for the year.

The government shift, after intense private disagreements within the cabinet, came amidst reports that Lloyds plans to pay out up to £120m in bonuses for 2008 to thousands of staff. Its chief executive, Eric Daniels, came under intense pressure after Friday's shock profits warning caused by the HBOS banking group it rescued four weeks ago. The bank insisted that bonuses were typically £1,000 or less.

Daniels and other members of the Lloyds board have been banned from taking bonuses after receiving £17bn of taxpayers' funds to bolster the bank but Daniels has always insisted that staff should be allowed to receive their bonuses, which are typically around 10% of their salary.

The government's bonus clampdown comes as polls suggest Labour may be losing support to the Conservatives and the Liberal Democrats over the issue.

One poll put Labour on only 25%, just three points ahead of the Lib Dems. The poll, by ComRes, is the third to show a rise in Lib Dem support. Vince Cable, the party's treasury spokesman, yesterday opposed all executive bonuses in the banks bailed out by the taxpayer.

The Guardian has previously reported that Gordon Brown is willing to impose a bonus cap in banks in which the UK has shares, but yesterday was the first time ministers started to talk in public about government-imposed restrictions, as opposed to recommendations, at least in the banks in which the government holds shares. The financial secretary to the Treasury, Stephen Timms, said "I think people will rightly want to make sure that very well-paid people who have contributed to the problems we are now seeing across the banking sector should not be rewarded by bonuses. In the case of banks in which we are a major shareholder we will have to agree the detailed arrangements for bonus payments.

"UK Financial Investments - which handles the shareholdings on behalf of the government - will scrutinise them very carefully indeed. We will take a very, very robust view."

The employment minister, Tony McNulty, said staff on lower salaries should not forgo their bonuses, but the issue was totally different for senior executives. "I would draw the line between senior managers, board members, executives, those responsible for the business model and strategy that got them into the mess, they shouldn't get a penny," he said.

A Lloyds spokesman said: "We are a retail and commercial bank where most colleagues earn approximately £17,000. We have been stretching performance targets and if they are met we believe it is right that colleagues receive some financial recognition. In most cases this means an annual bonus of £1,000 or less."

Separately, the chairman of the Financial Services Authority, Lord Turner, yesterday said he would be putting proposals for longer term reforms of executive bonus structures to the government on 18 March. Lord Turner also admitted there had been worldwide intellectual failures in regulation in that many supervisors, including the FSA, believed "this world of securitised credit has reduced the risks in the financial system".

Although he said the FSA had foreseen the scale of HBOS losses announced last week, ministers were under pressure yesterday to explain their role in encouraging the merger between Lloyds and HBOS. The losses have raised concerns that Lloyds' share price may come under sustained attack this week, increasing taxpayers' exposure over the deal.

Turner hinted he did not fully endorse the Lloyds-HBOS merger saying there could have been other ways of supporting HBOS without it. He told the BBC: " At that time [a merger with Lloyds] seemed to be a sensible way of buttressing HBOS, which was clearly by then a weak bank. There could have been a different way of directly supporting HBOS and keeping Lloyds separate."

The Treasury played down suggestions that it was making emergency contingency plans to shore up Lloyds let alone nationalise the bank. Timms said the bank had a "good commercial future".

But in a shift of position for the Tories, Cameron said the merger had been a mistake, even though he voted for it only four months ago.

Timms angrily countered it was "not on for the Tories to support the merger one week and then oppose it for opportunist reasons a week later".

He pointed out the Tory front bench had all voted in favour of suspending the competition rules to allow the merger to go ahead.