Britain is poised to increase its stake in Lloyds Banking Group as part of a deal that would also see the group agree to the government insuring its risky assets, according to the BBC.

It said the two sides were on the verge of a deal that would see the government increase its stake in LBG - created earlier this year from the merger of rivals HBOS and Lloyds TSB - from 43 per cent to up to 60 per cent.

This would be achieved by converting the expensive shares already held by the taxpayer to ordinary shares that carry voting rights.

At the same time, LBG are set to agree to ringfence risky assets worth up to £250 billion in the government's asset protection scheme, the BBC reported.

Lloyds insisted there was "no certainty" that it would join the scheme, under which banks pay a fee to have their bad loans underwritten by the government, leaving them with more freedom to lend to customers and businesses.

The group's head of communications, Shane O'Riordain, said talks with the government's Treasury department "are continuing", adding: "This is a complex subject and there is a good deal of detail to be worked through.

"Our conversations have not yet concluded and there can be no certainty that we will participate in this scheme."

A Treasury spokesman said: "Discussions are ongoing. A deal will be announced at the conclusion of those discussions."

Royal Bank of Scotland has already signed up to insure assets worth €£325 billion, in return for paying £6.5 billion and promising to lend £25 billion to British consumers and businesses this year.