The levy is a condition of the ?10bn (?8.6bn) bailout agreed this week, under which the troubled island accepted more draconian conditions than previous recipients, and is expected to raise around ?6bn (?5.1bn).
European officials said people with less than ?100,000 (?87,000) in their accounts will have to pay a one-off tax of 6.75%. Those with more money will lose 9.9%.
Some had worried that Britons would be affected, with Labour?s shadow armed forced minister saying ?the whole country will be outraged? if soldiers? savings were docked by the Cypriot government.
But speaking to the Andrew Marr Show, the Chancellor of the Exchequer 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.?
There are 59,000 British residents in Cyprus and 1.1 million Britons visit the island every year, the Foreign Office said. There are about 3,500 military personnel.
Mr Osborne sought political capital from the Mediterranean island?s troubles, crediting Prime Minister David Cameron for ensuring Britain is not part of the bailout and suggesting they vindicate his austerity programme.
He also assured savers that Cypriot banks in the UK will not be affected.
He said: ?First of all, that is an example, in Cyprus, if you don?t show the world that you can pay your way.
?That is why in Britain we?ve got to retain the confidence of world markets.
?What I?d say specifically about the Cyprus situation ? first of all, we are not part of the bailout because David Cameron got us out of these Euro bailouts when he became Prime Minister.
?Second, I?d say that the Cypriot banks in Britain ? this is important because there are many thousands of people who bank with Cypriot banks in Britain ? those banks are not going to be included in this bank tax.?
?Anyone who thinks Britain is alone in having these challenges should look on their TV screens, look at tonight?s news, realise that it?s a very tough economic situation out there.?
Last month Moody?s credit rating agency downgraded the UK?s AAA credit rating to AA1, saying ?subdued? growth prospects and a ?high and rising debt burden? were hampering the economy.
Foreign Secretary William Hague said the amount of money required to compensate British personnel was unknown, telling Sky News? Murnaghan programme: ?We are working on the details of (the compensation) this weekend, so we will be able to make further announcements during the week about that.
He added: ?One of the other important things about this is that the UK no longer has to pay into Eurozone bailouts, so we are not putting money directly into the banks.
?That?s because David Cameron negotiated a change in what the last Labour Government left us liable for.?
?It?s a lesson in a way to everyone who says that this country can just take on more debt rather than paying down our debts.
?Well, this is what happens if a country can?t pay its way and?Cyprus?is in a position at the moment where it can?t pay its way ? it can?t borrow money on the international markets.
?This is what can happen if you don?t put that right.?
http://www.independent.co.uk/news/uk/home-news/george-osborne-uk-will-compensate-troops-and-government-workers-affected-by-cyprus-bailout-levy-8537814.html
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