Ed Miliband has promised a “reckoning” with the banks as he unveiled his plans to force the big five high street giants to give up branches and open up the market to new competitors.
In a heavily-trailed speech, the Labour leader confirmed 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.
If the party wins the next general, he said that the Competition and Markets Authority would be instructed to report within six months on how to create a least two new “sizeable and competitive banks” to challenge the existing high street lenders.
“This is not about whether we should have new banks – the question this Government is still asking – but about how,” he said.
“It is not about creating new banks that control some tiny proportion of the market, but new banks that have a substantial proportion and can compete properly with existing banks.
“And we are not asking whether existing banks might have to divest themselves of significant number of branches. We are asking how we make that happen.”
Speaking at the University of London, Mr Miliband said that with just four banks controlling 85 per cent of small business lending, the financial services sector had proved a “poor servant” of the real economy.
“We need a reckoning with our banks, not for retribution but for reform,” he said.
“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.”
Earlier, shadow Business Secretary Chuka Umunna acknowledged that the move would affect the share price of the two predominantly state-owned banks – Royal Bank of Scotland and Lloyds.
“I’m not denying in the short term that you may see a hit on the share price of these banks – it’s probably happening as we speak now. But the reason we are doing this is so that we can grow our small businesses,” he said.