Military personnel and British civil servants working in Cyprus would be protected from the EU bank bailout levy, the Chancellor, George Osborne, promised today. But no such protection will be offered to the thousands of other UK expatriates on the island, who face being hit by the one-off charge.

The UK Government came under pressure to ensure that no service personnel would be affected after EU officials announced that people with up to €100,000 (£87,000) in Cypriot bank accounts would pay a 6.75 per cent levy, while those with more money would pay 9.9 per cent.

Speaking on The Andrew Marr Show, the Chancellor 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.”

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According to Treasury figures, there are about 59,000 British citizens in Cyprus, including 3,000 military personnel and about 150 civil servants. Government officials were still working out how much it would cost in recompense, with some estimates putting the cost to British expats at €170m.

Bank of Cyprus UK assured its customers in Britain that their deposits would not be affected by the levy, as it is a UK bank and is protected by UK financial regulation. It said on its website: “Bank of Cyprus UK Ltd is a separately capitalised UK incorporated bank, is subject to UK financial regulation and eligible depositors are protected by the UK’s Financial Services Compensation Scheme.”

Laiki Bank UK similarly assured its British customers their deposits would not be affected.

Cypriot bank officials indicated that withdrawing money before the levy was imposed would not protect depositors. They said customers could access all their money except the amount set by the levy. The money will help pay for a €10bn bailout of the stricken economy.