Royal Bank of Scotland pleaded to be treated as a fully commercial business as it confirmed it is paying out £785m in bonuses despite recording another loss – of £2bn – last year.

As the bank announced the fourth consecutive year of losses since its October 2008 bailout, chairman Sir Philip Hampton argued that it needed to be run on "commercial grounds" if taxpayers were to get their £45bn investment repaid. The state is currently sitting on a £20bn loss on its 82% stake, despite the shares rising 5% to 28.2p.

Even as the bank insisted that bonuses were down and attempted to show restraint by imposing salary freezes on its 17,000 investment bankers and other high-paid staff, union officials were furious at 1% salary rises for branch staff who will not share in the £390m investment banking bonus pool.

The retail arm recorded a jump in profits and David Fleming, Unite national officer, accused the bank of "hypocrisy". "The bonus pot would give these low-paid employees approximately £6,000, which amounts to simply loose change for a City slicker," Fleming said.

Rival bailed out bank Lloyds Banking Group will also report losses on Friday and face a potential row over pay if it discloses a golden hello for new finance director George Culmer, who is to join in May.

RBS insisted average pay for investment bankers had fallen 26% from £152,000 to £112,000 although calculations of average staff costs inside the investment bank showed they had remained steady at £144,000 despite a 54% fall in operating profit to £1.5bn.

The compensation to income ratio – which shows how much revenue is used to pay staff – rose to 41% from 34% and the Association of British Insurers argued that the "figures make it difficult to judge" how far RBS was sharing the spoils between employees, shareholders and to strengthen its financial position. Chris Leslie, shadow Treasury minister, accused the chancellor of doing "nothing to change the excessive bonus culture that continues to roll on and on".

The average investment banking bonus was £22,941, more than 50% lower than £50,114 a year ago, while the bonus pool for the 146,000 staff across the group was £795m. For accounting purposes the "variable compensation" was £985m.

Chief executive Stephen Hester said his colleagues should not hand their bonuses back as he did – and warned the "noise" around RBS was damaging.

"You can't have your cake and eat it," said Hester. "If you want an RBS that is mired in the past, a British Leyland, then we should be judged on a different basis," Hester said.

He defended the investment bank, saying that without the £10bn of profits it had generated in the past three years another taxpayer bailout would have been needed.

The £45bn bailout had been enough to keep the bank afloat but not to cover the £42bn of clean up charges incurred so far, paid for out of £33bn of operating profits, Hester said as he described an an "Alice in Wonderland" world in which bigger losses were proof of success as the bank wound down its balance sheet.

Some £10bn of the clean-up bill comes from Ulster Bank's bad property loans.

Ministers lined up in support of the pay deals, as did UK Financial Investments which controls the taxpayer stake. George Osborne said RBS was"cleaning up the mess after the biggest bank bailout in history" and that "bonuses at the investment bank are less than half what they were last year and less than a third of what they were in 2009".

Hampton admitted that ministers had been warned by "many sources" about the impact of anti-business rhetoric and not just on RBS.

Hester revised down targets for return on equity from 15% to 12% but stressed that many other targets he set when he took the helm three years ago had been achieved, such as reducing the balance sheet by £700bn – which he described as twice the size of Greece's debt.