George Osborne criticises handling of Cyprus bailout

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Media captionGeorge Osborne: "We are trying to help those in trouble"

George Osborne has criticised the handling of the Cyprus crisis by European and Cypriot authorities.

The UK chancellor told the Treasury Committee that initial plans to impose a levy on bank deposits was a "mistake" and had "not been well handled".

Mr Osborne also revealed the government was in talks with Cypriot authorities to find a "British solution" regarding branches of Laiki Bank in the UK.

The bank is due to be wound up under Cyprus's bailout deal.

"It has not been well handled over the last very days, but you have to respect the fact that it's a newly elected president facing incredibly difficult decisions," Mr Osborne told MPs.

Cypriot President Nicos Anastasiades has only been in the job for a matter of weeks before the bailout was negotiated.

'Considerable damage'

Mr Osborne said the UK did not have prior knowledge of the original plan to impose a bank levy, which would have seen small depositors effectively charged 6.75% of their deposits to fund the bailout.

Had the measure been imposed, he said, "very considerable damage would have been done to the principle of deposit insurance".

But the chancellor showed his support for the new deal agreed with Cyprus, which involves massive restructuring of the banking sector, saying it "leaves Cyprus with a sustainable debt situation".

The chancellor also said the future of UK branches of Laiki Bank - also known as Cyprus Popular Bank - was the subject of discussions between the Treasury and Cypriot authorities.

Laiki Bank is due to be closed as part of the restructuring plan, but there are a small number of branches in the UK serving around 13,000 customers.

"Discussions are taking place at the moment. I can't say a great deal more about them but we are engaged in negotiations to try to avoid the branches in the UK becoming sucked into the Cypriot resolution process," Mr Osborne said.

Help to Buy

During the same hearing, Mr Osborne also defended his new scheme to help homebuyers. He told the committee that he wanted to make mortgages more affordable and that experts did not think it would stimulate a housing bubble.

But earlier, the same committee had been told by a Budget expert - Steve Nickell of the Office for Budgetary Responsibility (OBR) - that the chancellor's scheme would push up house prices and generate only a "bit" more house-building.

The scheme, called Help to Buy, was unveiled in the Budget. Some economists and MPs criticised it the following day, saying it might simply make houses more expensive.