The British government has struck a deal with banks to curb bonuses and boost lending, people familiar with the matter said on Wednesday, but the accord could prove hard to enforce.

The talks, dubbed "Project Merlin", will see the top five UK banks agree to lend about 190 billion pounds ($305.3 billion) gross to businesses this year, up from about 175 billion previously, sources told Reuters.

As part of the Merlin deal, the banks will also agree to pay lower bonuses for 2010 than in 2009 and disclose the pay of the top five paid executives in addition to board members, the sources said.

The Conservative/Liberal Democrat coalition government has a tough balancing act on its hands as it seeks to assuage anger over the use of public funds to rescue the banking system at the height of the financial crisis without damaging London's competitiveness as a major financial centre.

"Project Merlin" has already stalled several times, with the banks arguing that an excessive clampdown on them would harm the UK's role at the helm of world finance.   

News of the deal came as research by The Bureau of Investigative Journalism revealed a leap in the amount of funding the main governing Conservative Party receives from London's financial institutions and as opposition politicians accused the government of shying away from penalising bankers.   

Analysts said the banks could find ways around the deal, since they could counter a cut in bonuses with an increase in basic pay, and could argue that any shortfall in lending reflected a lack of demand for credit from consumers.   

"It is unlikely that the banks will do much more lending if the demand for loans from credit-worthy customers remains muted," said Canaccord Genuity analyst Cormac Leech.

Andrew Cave, Head of Policy at the Federation of Small Businesses, welcomed the deal but said it contained nothing binding and did not do anything to tackle "an appalling lack of competition" in the banking sector.   

"It's made for great political theatre," Cave told the BBC. "Yesterday we hear the banks squealing about 800 million pounds which amounts to nothing more than a week's profits for three of the banks and today we hear about lending targets."    

On Tuesday, the government sprang a surprise by saddling the heavyweight UK banks with an extra 800 million pounds in taxes this year as it brought forward existing plans to impose a 2.5 billion pounds a year levy on them from 2012.

The banks responded angrily and sterling fell on the move.

Opposition politicians accused finance minister George Osborne of using the new tax as a fig leaf to cover up failure to make much progress in getting the banks to make significant commitments, particularly on bonus restraint.  - Reuters