TAXPAYER-backed Lloyds Banking Group has reported a big rise in profits for the first three months of the year.

The bank, which is 39 per cent taxpayer-owned, reported a pre-tax profit of £2.04bn in the first quarter, up from £280m for the same period last year.

Costs fell six per cent in the first quarter and Lloyds added that it expected annual costs to fall to just over £9bn for 2014.

The group said it was increasing cost-cutting efforts by another £200m this year under a programme that has already seen more than 8,800 jobs cut – including nearly 1,900 in the first quarter alone.

It said the extra savings would be made across the business, but were not expected to lead to further job losses on top of those already planned.

Group chief executive Antonio Horta-Osorio said the bank had made substantial progress. That is despite the collapse last week of a deal to sell more than 630 of its branches to the Co-op.

Lloyds still plans to go ahead with the branch sale, called Project Verde, by selling them as a stand-alone bank through a stock market listing next year.

Mr Horta-Osorio said profits at the bank had been driven by increased margins and a continued rapid fall in costs and impairments.

The bank said it was continuing to invest in “simple, lower-risk, customer-focused UK retail and commercial banking”.

It also said impairment charges, money set aside to cover bad loans, were down by 40 per cent compared with a year ago.

The share price has risen more than 70 per cent over the past year, but remains significantly off its pre-crisis highs, and below the level at which the Government can consider selling its 39 per cent stake back to the private sector.

In its annual results published earlier this month, the bank suggested the price must reach at least 61p a share before a sale could be considered.

It is currently about 55p.

Underlying profits, which strip out certain one-off costs and gains, were £1.5bn for the quarter. They exclude costs related to Project Verde, as well as money set aside for possible Payment Protection Insurance (PPI) payouts.

The bank has already set aside £6.8bn as a result of the PPI scandal, but did not announce any fresh provisions.