Osborne to unveil measures to give bank savers more security

Chancellor George Osborne will unveil his long-awaited banking White Paper, which follows last year’s recommendations from the Independent Commission on Banking, led by Sir John Vickers, on how to make the sector safer and give greater protection to depositors.

In his annual Mansion House speech tonight, Mr Osborne will say: “We’ve got to stop problems here in the City of London spilling onto our high streets and putting taxpayers’ money at risk.”

The Chancellor will press ahead with the commission’s more contentious proposals that will see individual depositors ranked above bondholders and corporate creditors when it comes to recovering cash owed after a bank failure.

But he is considering an important concession to banks angered by proposals to ring-fence depositor cash from riskier operations and investment banking by broadening the range of activities allowed within ring-fenced businesses.

The move is likely to be welcomed by banks, which have lobbied hard for a wider scope of allowed activities.

Mr Osborne will add: “High-street banking will be ring-fenced so that taxpayers are better protected when things go wrong.

“We will be able to bail in creditors when a bank fails rather than turning to the public purse. And I believe that we have found a workable way to solve what I called the ‘British dilemma’ – so we are proposing to protect taxpayers in a way that does not make the UK uncompetitive as a home of global banks.”

The banking sector has claimed moves to give savers preference would push up the cost of business loans and mortgages, as bondholders could demand banks pay higher interest rates to offset the greater risk they face on bank investments.

Richard Lloyd, of consumer group Which?, said the reforms “should be a major step towards restoring consumer confidence and transforming the culture of banking” and urged Ministers to increase competition and choice on the high street.

“We want the White Paper to set out a clear and urgent timetable for reform, which must not be derailed by vested interests,” he said.

“Consumers should never again have to foot the bill for a banking bailout that last time cost every man, woman and child £2,000.”