Labour promise to limit high street banks is flawed, says Bank of England governor Mark Carney

Canadian defends bonuses and derides Ed Miliband’s plan to give customers more choice by limiting market share

A Labour government would dilute the power of the “Big Five” high street banks by placing a cap on their domestic market share, Ed Miliband will announce on Friday.

The Independent has learnt that a maximum market share would be set by the Competition and Markets Authority. It would base the cap on a series of key tests set by the government.

The move comes after the Prime Minister rejected Labour demands to stop the state-owned Royal Bank of Scotland handing out huge bonuses this year. David Cameron said the Government would veto any increase in the overall pay bill for RBS investment bankers. However, that will not prevent big bonuses because the bank has shed thousands of jobs.

In a keynote speech, Mr Miliband will answer Conservative jibes that he has no long-term economic plan by shifting his sights from the energy firms to the banks. He will call for fundamental reform to allow smaller banks to enter the market, giving consumers more choice and making it much easier to switch banks.

The Labour plan could force the big retail banks to sell off hundreds of branches. At present, HSBC, Barclays, RBS, Santander and Lloyds account for 90 per cent of bank customers and total lending.

But Mark Carney, the Governor of the Bank of England, poured cold water on Labour’s big idea. He told the Commons Treasury Committee that a cap on banks’ market share would “not result in substantial improvement to competition”. He added: “Just breaking up an institution doesn’t necessarily create or enable a more intensive competitive structure.” The Governor noted that the existence of a 10 per cent limit on banks’ market share of deposits in the US had not prevented the development of large and fragile institutions.

Mr Carney also said he was not convinced a “crude bonus cap” was the right way to control pay. The Governor argued that the EU-wide limit on bonuses for bankers earning more than £830,000 to 100 per cent of salary, or 200 per cent if approved by shareholders, was likely to encourage financial institutions to push up their employees’ base cash salaries instead – sums which could not be clawed back in the future in the same manner as bonuses awarded in the form of deferred shares.

Chris Leslie, the shadow Chief Treasury Secretary, said that people were more likely to get divorced than change their bank account. “We have got to give customers more choice,” he said. “Fees and charges are too high, there’s not enough sense of competition and hunger among the banks to serve the customers.”

Labour also wants to create a network of regional banks, that would lend money to local businesses so that they could expand and create jobs.

Today, Mr Cameron was on the defensive over the annual round of bankers’ bonuses. Ministers want RBS to attract and retain the best bankers in order to boost the prospects of recouping the £45bn taxpayers’ bailout. But that may leave the Government exposed to criticism over high bonuses in the meantime.

At Prime Minister’s Questions, Mr Cameron promised to limit cash bonuses at RBS to £2,000 for the third year running. However, that would not stop bankers receiving bonuses in shares. He dismissed Mr Miliband’s call to ban any bonus worth more than 100 per cent of salary.

Cameron aides said total remuneration at RBS had halved from £2.9bn to £1.4bn. But Labour pointed out that 40,000 jobs had been lost at the bank since the crisis. “It is quite clear that the Government will do nothing to rein in these excessive bonuses,” said a Labour source.

Later, a Labour motion calling on the Government to reject any request from RBS to increase the bonus cap was defeated by 304 votes to 242.

George Osborne, the Chancellor, said: “These European rules will not lead to bankers being paid less. What they will lead to is a Fred Goodwin-style situation where you will not be able to get money back off bankers when things go wrong. That is precisely what we have been trying to get away from in Britain.”

RBS stressed it had not made any decision on whether to seek shareholder approval to pay the maximum allowable bonus. The majority of European banks are expected to ask shareholders to endorse bonuses at the higher level of up to 200 per cent.

The Banksy image in Folkestone before it was vandalised
Life and Style

Sales of the tablet are set to fall again, say analysts

football West Brom vs Man Utd match report: Blind grabs point, but away form a problem for Van Gaal
Arts and Entertainment
Gotham is coming to UK shores this autumn
tvGotham, episode 2, review
Arts and Entertainment
Bloom Time: Mira Sorvino
tvMira Sorvino on leaving movie roles for 'The Intruders'
First woman: Valentina Tereshkova
peopleNASA guinea pig Kate Greene thinks it might fly
Brian Harvey turned up at Downing Street today demanding to speak to the Prime Minister

Met Police confirm there was a 'minor disturbance' and that no-one was arrested

Arts and Entertainment
George Lucas poses with a group of Star Wars-inspired Disney characters at Disney's Hollywood Studios in 2010

George Lucas criticises the major Hollywood film studios

Chris Grayling, Justice Secretary: 'There are pressures which we are facing but there is not a crisis'

Does Chris Grayling realise what a vague concept he is dealing with?

ebooksAn unforgettable anthology of contemporary reportage
Life and Style
A street vendor in Mexico City sells Dorilocos, which are topped with carrot, jimaca, cucumber, peanuts, pork rinds, spices and hot sauce
food + drink

Trend which requires crisps, a fork and a strong stomach is sweeping Mexico's streets

Life and Style
The charity Sands reports that 11 babies are stillborn everyday in the UK
lifeEleven babies are stillborn every day in the UK, yet no one speaks about this silent tragedy
Blackpool is expected to become one of the first places to introduce the Government’s controversial new Public Space Protection Orders (PSPOs)

Parties threaten resort's image as a family destination

Life and Style
Northern soul mecca the Wigan Casino
fashionGone are the punks, casuals, new romantics, ravers, skaters, crusties. Now all kids look the same
Life and Style

I Am Bread could actually be a challenging and nuanced title

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Customer Service Executive / Inbound Customer Service Agent

£18 - 23k + Benefits: Guru Careers: We are seeking a Customer Service Executiv...

ASP.NET Web Developer / .NET Developer

£60 - 65k + Benefits: Guru Careers: We are seeking a ASP.NET Web Developer / ....

Operational Risk Manager - Asset Management

£60,000 - £80,000: Saxton Leigh: Our client is an leading Asset Manager based...

Project Coordinator - 12 month contract

£27000 - £32000 Per Annum: Clearwater People Solutions Ltd: Our large charity ...

Day In a Page

Two super-sized ships have cruised into British waters, but how big can these behemoths get?

Super-sized ships: How big can they get?

Two of the largest vessels in the world cruised into UK waters last week
British doctors on brink of 'cure' for paralysis with spinal cord treatment

British doctors on brink of cure for paralysis

Sufferers can now be offered the possibility of cure thanks to a revolutionary implant of regenerative cells
Ranked seventh in world’s best tourist cities - not London, or Edinburgh, but Salisbury

Salisbury ranked seventh in world’s best tourist cities

The city is home to one of the four surviving copies of the Magna Carta, along with the world’s oldest mechanical clock
Let's talk about loss

We need to talk about loss

Secrecy and silence surround stillbirth
Will there be an all-female mission to Mars?

Will there be an all-female mission to Mars?

Women may be better suited to space travel than men are
Oscar Pistorius sentencing: The athlete's wealth and notoriety have provoked a long overdue debate on South African prisons

'They poured water on, then electrified me...'

If Oscar Pistorius is sent to jail, his experience will not be that of other inmates
James Wharton: The former Guard now fighting discrimination against gay soldiers

The former Guard now fighting discrimination against gay soldiers

Life after the Army has brought new battles for the LGBT activist James Wharton
Ebola in the US: Panic over the virus threatens to infect President Obama's midterms

Panic over Ebola threatens to infect the midterms

Just one person has died, yet November's elections may be affected by what Republicans call 'Obama's Katrina', says Rupert Cornwell
Premier League coaches join the RSC to swap the tricks of their trades

Darling, you were fabulous! But offside...

Premier League coaches are joining the RSC to learn acting skills, and in turn they will teach its actors to play football. Nick Clark finds out why
How to dress with authority: Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear

How to dress with authority

Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear
New book on Joy Division's Ian Curtis sheds new light on the life of the late singer

New book on Ian Curtis sheds fresh light on the life of the late singer

'Joy Division were making art... Ian was for real' says author Jon Savage
Sean Harris: A rare interview with British acting's secret weapon

Sean Harris: A rare interview with British acting's secret weapon

The Bafta-winner talks Hollywood, being branded a psycho, and how Barbra Streisand is his true inspiration
Tim Minchin, interview: The musician, comedian and world's favourite ginger is on scorching form

Tim Minchin interview

For a no-holds-barred comedian who is scathing about woolly thinking and oppressive religiosity, he is surprisingly gentle in person
Boris Johnson's boozing won't win the puritan vote

Boris's boozing won't win the puritan vote

Many of us Brits still disapprove of conspicuous consumption – it's the way we were raised, says DJ Taylor
Ash frontman Tim Wheeler reveals how he came to terms with his father's dementia

Tim Wheeler: Alzheimer's, memories and my dad

Wheeler's dad suffered from Alzheimer's for three years. When he died, there was only one way the Ash frontman knew how to respond: with a heartfelt solo album