ED MILIBAND has warned of a “reckoning” with the UK’s biggest banks as he announced plans to force the big five high street giants to give up branches and open up the market to new competitors.
The Labour leader insisted the main banks are too powerful and should be forced to give up “significant” numbers as he unveiled a flagship policy to break up the banking sector ahead of next year’s General Election.
Mr Miliband accepted the last Labour government had made mistakes in bank regulation before the sector’s collapse in 2008, but said David Cameron was happy with a “steady as you go” approach to reform.
He promised that a Labour government would impose a US-style cap on the market share that any one bank can have in personal accounts and small business lending as he delivered a keynote speech yesterday. A Labour government would instruct the Competition and Markets Authority to report within six months on how to create at least two new “sizeable and competitive banks” to challenge the existing high street lenders.
The “big five” banks – the Royal Bank of Scotland, HSBC, Barclays, Santander and Lloyds Banking Group – account for the majority of bank customers and lending.
Mr Miliband insisted a shake-up was needed to reform the sector, in which he said a small number of banks control 85 per cent of small business lending in the UK.
The Labour leader likened the “broken” banking system to the energy market, claiming “too much power is concentrated in too few hands” and this has had a detrimental effect on enterprise and jobs.
Mr Miliband, speaking in London, said: “We need a reckoning with our banks, not for retribution but for reform. In this country, over decades we have seen greater and greater concentration in our banking system.
“I am determined that the next Labour government turns that tide. I want to send a message to all the small and medium sized businesses of our country: under the next Labour government, instead of you serving the banks, the banks will serve you once again.”
The Labour leader, when asked what he thought the maximum size of a bank should be, said he would “not dream up a figure out of the air” and the regulators should decide.
Mr Miliband was also quizzed over why the previous Labour government of which he was a part had not tackled the causes of the cost of living “crisis” which he acknowledged dated back many years.
He said: “We did lots of things to tackle some of the issues that people faced in terms of the cost of living, like tax credits which made a big difference to a lot of people.
“What I don’t think we did enough of was changing the way our economy works before you get to tax and benefits, so actually you are generating more of the high-paying, secure jobs we need, like for example in banking.”
Bank of England Governor Mark Carney said earlier this week that he supported the view that a cap on banks’ market share “would not result in substantial improvement to competition”.
However, Mr Miliband sought to play down any difference with Mr Carney – insisting they were agreed on the issue.
Mr Miliband said: “To be fair to the Governor of the Bank of England, he hadn’t seen my speech, it hadn’t been delivered.”
However, Business Secretary Vince Cable insisted the coalition government had already taken action to increase competition in the banking sector, with new challenger banks entering the system.
The Lib Dem cabinet minister said that imposing “arbitrary ceilings” on the market share of banks was not a “sensible way” of increasing competition.
Mr Cable said: “We do need competition in the banking sector but he is in danger of re-inventing the wheel. The proposals Ed Miliband put forward this morning don’t really add to anything we have already got. ”