Reckless bankers to be jailed as George Osborne backs sweeping reforms of industry

Government to implement tighter control of bonuses in response to Parliamentary Commission's landmark report

The parliamentary commission's report says new rules are required to force City executives to take proper responsibility (Getty Images)

Chancellor George Osborne pledged today to implement criminal penalties for reckless bankers and tighter control for bonuses as he set out the Government's response to a landmark Parliamentary commission.

But he rejected a recommendation for the abolition of UK Financial Investments (UKFI), the body that handles the state's holdings in the Royal Bank of Scotland and Lloyds Banking Group

Its role came into focus when RBS chief executive Stephen Hester quit last month amid speculation that he had been forced out by the Treasury, which through UKFI owns 81% of the bank.

In a statement, the Government set out key proposals from the commission to be added to the banking reform Bill in the autumn.

These are to include a new offence of "reckless misconduct" for senior bankers, with those found guilty facing a possible jail sentence.

Mr Osborne also backed moves to allow bonuses to be deferred for up to 10 years and enable 100% "claw back" of bonuses where banks are propped up by the state.

Further measures, designed to improve competition, will include asking the new payments regulator to look into making it easier to switch between accounts, and beefing up the role of the new Prudential Regulation authority.

Labour has accused the Government of ducking radical reforms and is demanding that ministers explain how it will protect taxpayers' interests when the state-owned stakes in Lloyds and Royal Bank of Scotland are sold off.

The commission, chaired by Conservative MP Andrew Tyrie, was set up by the Chancellor in the wake of the financial crisis and the Libor rate-rigging scandal.

Members included former Tory chancellor Lord Lawson and the Archbishop of Canterbury, Justin Welby.

Mr Osborne said the main recommendations of its report, published last month, were being delivered. He said cultural reform was necessary in banking "to move the whole sector from rescue to recovery and ensure that UK banks demonstrate the highest standards, and are able to support business and drive economic growth".

He added: "The Government is determined to raise standards across the banking industry to create a stronger and safer banking system."

Business Secretary Vince Cable said: "If we're to get our economy back on track, we need to get the banking system back on track first.

"Creating new powers to jail bankers who are reckless with other people's money and getting more competition into banking, is a start."

PA