Labour brand George Osborne and Vince Cable 'weak' as key reforms to banking system are thrown out

Ministers reject several recommendations of the commission set up to prevent future bailouts

Government plans to reform banks came under sustained attack on Monday night as ministers opted to ignore some of the key recommendations of the Parliamentary Commission into Banking Standards that it set up.

In an 80-page response, the Chancellor, George Osborne, and Business Secretary, Vince Cable, offered only a partial endorsement of the commission's exhaustive report, and were immediately attacked as "weak" by Labour.

Andrew Tyrie, the Conservative chairman of the multi-party commission, said: "On an initial reading, the Government's response appears to fall short on a number of important points, including the leverage ratio, proprietary trading, improving the governance of the Bank of England and reform of the Financial Conduct Authority's objectives. Only when the Government's formal amendments have been laid before Parliament will we be able to assess them."

Mr Tyrie also rounded on amendments put forward to the commission's plans to electrify the ring fence around retail banks by giving regulators the power to break up those that seek to break through it. He said they had in effect rendered electrification "useless" and demonstrated an urgent need "to remain vigilant".

Mr Tyrie said the industry had cost the country "a fortune". And he said: "I hope their lordships will repair some of the damage."

Andy Love, a Labour member of the commission, asked whether the Government had "electrified the ring fence enough" and suggested that banks needed "encouragement" to live by it.

And Chris Leslie, shadow Financial Secretary to the Treasury, called for a "more rigorous, thorough" review of ring fencing that would draw upon independent experts. "There is a danger of regulators marking their own exam paper if the job is left to the Prudential Regulation Authority," he warned.

Top executives are, however, set to face jail if they recklessly run a bank into the ground, with a new offence set to be created. Other key recommendations that the Government will accept include the introduction of a regime governing the behaviour of senior bank staff and new rules to promote higher standards for all bank staff. The burden of proof when regulators bring charges against senior bankers will also be reversed.

However, the list of recommendations that were rejected included the call for the scrapping of UK Financial Investments, which manages the taxpayers' stake in banks, and proposals to strengthen banks by tightening the so called "leverage ratio", a measure of capital strength.

In the City, reaction was one of relief. Shares in the big UK banks finished up, with Barclays closing up 7.1p at 298.6p, Lloyds ahead 2.47p at 67.1p, Royal Bank of Scotland up 12.1p at 288.8p, and HSBC higher by 4.9p at 717.4p.

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