Labour to lay ground for new agenda by calling Commons vote demanding cap on size of bonuses in state-owned RBS
Proposals to cap the size of banks and introduce greater banking competition are set to be a central feature of a major speech by Ed Miliband on Friday as the Labour leader moves on from the cost-of-living agenda he set at the last Labour conference.
Labour will try to lay the ground for the new policy agenda later on Wednesday by calling a Commons vote demanding the government cap the size of bankers' bonuses in state-owned RBS, saying it is a national embarrassment that it has been left to the European Union to try to cap British bankers' bonuses. Critics said Labour is uniquely trying to hobble RBS.
The Labour leader is under pressure after a fall in his party's lead in YouGov and ICM polls this week. He aims to show that Labour would undertake long-term structural reforms to the economy, rather than merely ameliorate the effect of falling living standards. Miliband wants to show that just as he took on the big six energy firms, he is willing to reform the big five banks by forcing through greater competition.
Labour distanced itself from suggestions it would impose a cap on bank size set at a specific 25% of market share, describing the figure as wide of the mark. A 25% cap would probably only require the break-up of Royal Bank of Scotland. But industry sources said they had been briefed that Labour would impose a cap on the number of retail branches owned by the big five banks, so forcing them to sell off some of their branches to new market entrants.
The shadow Treasury secretary, Chris Leslie, speaking on BBC Today programme said: "It is part of the old economic construct that we have this high-rolling bonus culture. We have got to move to a sustainable professional stable form of banking if we are going to earn our way out of this cost-of-living hole we are in and if we are to help the small businesses get the finances they need to build a better economy. And we have got to have more competition in the banking sector.
"We have a situation where customers feel, 'what is the point of switching?' It is no wonder that people stay with one bank account. Apparently you are more likely to get divorced than change bank account. We have got to give customers more choice. Fees and charges are too high and there is not enough hunger in the banks to serve customers."
He added the government had failed to implement the Vickers commission reforms on banking.
Leslie justified Labour's plan to cap bonuses of RBS bankers at twice their annual salary, saying: "It is time to change this high-risk, high-reward bonus culture which has caused such devastation. Is the chancellor going to roll over and let these bonuses go ahead even though he owns 81% of the shares in RBS? Is he going to roll over and let the market continue?"
The Treasury said there was no proposal from RBS yet to seek to pay higher bonuses, something that requires shareholder approval. But the Treasury is opposed to the cap on bonuses imposed by the European Union
Ross McEwan, the RBS chief executive, is currently devising his strategy for the bank, which was bailed out with £45bn of taxpayer money five years ago. RBS said on Tuesday night that no decisions have been made. When it publishes its results for 2013 the bank is expected to show the size of its bonus pool for that financial year.
Last year it revealed it had paid 95 bankers more than £1m on the same day Barclays said it had paid 428 bankers more than that amount. If RBS did decide to ask shareholders to approve a twice-salary limit on bonuses, the vote would most likely take place at the AGM, probably in May.
On the wider issue of banking reform, Miliband has already said he would like to see regional banking in order to rebalance the economy and encourage growth outside the south-east.
Labour's small business task force argued: "Our European competitors, particularly Germany, have maintained higher levels of small business lending in recent years with commercial banks which are focused on supporting the real economy, not maximising profits."
Labour has repeatedly been accused of being too close to the banking industry in government and the shadow chancellor, Ed Balls, has agreed he failed to regulate the industry enough.
A Conservative spokesman said: "Labour's failure to regulate the financial system led to the worst banking crash in our history … so this is another problem Ed Miliband is talking about that was created by the Labour government he was at the heart of.
"That's why part of [our] long-term economic plan is about fixing our banking system – by increasing competition on the high street, ring-fencing retail from investment banking so no bank is too big to fail, and increasing lending to business."
The government has already said the UK's biggest banks will be broken up if they fail to follow new rules to ring fence risky investment operations from high street outlets. Ministers have also unveiled measures to increase competition in the banking sector, including enabling customers to switch current accounts within a week.
The City, however, appeared to brush off the debate into banking and bonuses. RBS shares were 3.7p ahead in morning trading to reach 373.35p.
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