Britain's banks will be paying out compensation to customers mis-sold loan insurance for years to come, having already set aside £24 billion to deal with the issue, the UK's chief financial ombudsman said.

The UK Financial Ombudsman Service said it expected to settle 250,000 disputes about the mis-selling of payment protection insurance (PPI) in the next financial year. 

The Ombudsman steps in when banks and their customers can not reach an agreement.

PPI policies were meant to protect borrowers in the event of sickness or unemployment but were often sold to those who would have been ineligible to claim and the resulting compensation bill has made it Britain's costliest ever consumer scandal. 

The ombudsman said it was continuing to receive around 4,000 complaints about PPI each week, although that is down from a peak of 12,000 cases a week in late 2012. 

"Complaints about PPI are still the main driver of financial disputes. And although numbers are slowly declining, it will be years before we can truly say this mis-selling scandal is over," Chief Ombudsman Caroline Wayman said today. 

Lloyds Banking Group has set aside £11.3 billion for compensation, more than any other British bank. 

Barclays, Royal Bank of Scotland and HSBC have also set aside billions of pounds. 

In its proposed plan and budget for the 2015/16 financial year, the ombudsman said it would take on 200 new staff to deal with new complaints relating to PPI and other matters. 

The ombudsman, which is funded by the financial services industry, said it planned to freeze case fees paid by businesses and reduce its cost to the industry by 13%.