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.

Start your day with The Independent, sign up for daily news emails
Life and Style
love + sex
A propaganda video shows Isis forces near Tikrit
voicesAdam Walker: The Koran has violent passages, but it also has others that explicitly tells us how to interpret them
ebooksA special investigation by Andy McSmith
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

Ashdown Group: Graduate Application Support Analyst

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Reach Volunteering: External Finance Trustee Needed!

Voluntary post, reasonable expenses reimbursed: Reach Volunteering: Would you ...

Christine McCleave: FP&A Analyst

£36,000 - £40,000: Christine McCleave: Are you looking for a new opportunity a...

Recruitment Genius: Sales Executive - OTE £40,000

£15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...

Day In a Page

Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

Climate change key in Syrian conflict

And it will trigger more war in future
How I outwitted the Gestapo

How I outwitted the Gestapo

My life as a Jew in wartime Berlin
The nation's favourite animal revealed

The nation's favourite animal revealed

Women like cuddly creatures whilst men like creepy-crawlies
Is this the way to get young people to vote?

Getting young people to vote

From #VOTESELFISH to Bite the Ballot
Poldark star Heida Reed: 'I don't think a single bodice gets ripped'

Poldark star Heida Reed

'I don't think a single bodice gets ripped'
The difference between America and Israel? There isn’t one

The difference between America and Israel? There isn’t one

Netanyahu knows he can get away with anything in America, says Robert Fisk
Families clubbing together to build their own affordable accommodation

Do It Yourself approach to securing a new house

Community land trusts marking a new trend for taking the initiative away from developers
Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

Money, corruption and drugs

The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

150 years after it was outlawed...

... America's first slavery museum is established in Louisiana
Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
Tony Oursler on exploring our uneasy relationship with technology with his new show

You won't believe your eyes

Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

Moores must go. He should never have been brought back to fail again

The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn