The Ombudsman service hit the industry last month with a £25m levy it said was needed to cover the exceptional cost of dealing with the 5,000 complaints it is receiving about PPI every week.

However, the British Bankers’ Association (BBA) said yesterday it will not appeal a High Court judgment backing up the ombudsman’s and FSA’s view PPI had been widely mis-sold.

Banks, which were found to be the biggest culprits in the mis-selling scandal, had previously refused to either deal with the complaints internally or pay the cost of those complaints handled by FOS.

The climb-down has promoted calls from the wider industry for FOS to pass back the burden of the costs to the guilty parties, and hand back some of the £25m to levypayers.

All firms authorised or registered by the FSA were hit with the levy, including those which have not had any cases referred to the ombudsman service.

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A FOS spokesperson said if the reserve was not needed it will be used to offset next year’s levy.

“If the reserve is not required, it will help to reduce calls on the industry next year,” he said.

But he added there is still “considerable uncertainty” about the volume, scale and type of PPI complaints and steps the ombudsman will need to take to resolve the large number of cases it has to deal with.

The FOS said it has received over 200,000 complaints in total about PPI policies, with over 100,000 in the last financial year 2010/11. It has upheld three out of four cases in favour of consumers.