Ed Miliband to call for banking competition inquiry

A Labour government would tell regulators to investigate whether there is adequate competition between High Street banks, the BBC understands.

Ed Miliband is due to say on Friday that the authorities should look into whether breaking up banks would benefit customers.

It comes amid a growing row over whether the government should intervene over bonuses at Royal Bank of Scotland.

On Tuesday the prime minister defended the government's position on bank pay.

BBC business editor Robert Peston said that Mr Miliband will address competition in banking during at speech on business and economy on Friday.

"Part of what Ed Miliband will announce is that a Labour government would ask the newly-created Competition and Markets Authority to investigate whether there is inadequate competition between banks, and whether breaking them up would improve competition."

Mr Miliband is also expected to say that bank customers should have a permanent account number, which he believes would make it easier to switch banks.

However, the banking industry is wary about such "portable accounts", which could involve large investments to upgrade IT technology.

In the Commons on Tuesday, the Labour leader stepped up the pressure over pay, calling on the government to use is powers - as Royal Bank of Scotland's largest shareholder - to limit bonuses.

Veto

There have been reports that RBS, 80%-owned by the government, may seek to pay bonuses of up to double its bankers' annual salary.

Under EU rules, from 2015 RBS can only pay bonuses up to 200% of annual salary if shareholders approve the decision.

On Tuesday, Prime minister David Cameron defended the government's position, arguing that there was sufficient regulation of bankers and their pay.

He said he would veto any attempt by RBS to increase its overall pay and bonus bill at the investment bank.

However capping the overall bill is not the same as vetoing individual bonuses, and the prime minister did not say the government would reject individual pay awards.

As RBS is reducing its headcount across the group, it could still pay 200% bonuses to a dwindling group of investment bankers earning over £1m a year without increasing its overall pay and bonus bill.

Meanwhile Chancellor George Osborne said: "This government has done more than any to bring the banking system back under control".

'Consulting with shareholders'

If RBS did decide to award 200% bonuses next year, shareholder approval would have to be sought at this year's annual general meeting, probably in May.

As it is, fewer than 100 RBS investment banking staff would be affected by the bonus decision, as RBS has reduced the size of its investment banking arm by about three-quarters since 2007.

An RBS spokesman confirmed to the BBC that general discussions about bonuses had been taking place with shareholders, including UK Financial Investments, the body that manages the government's shareholding in the bank.

But he said: "No decisions have been taken yet. We're consulting with our shareholders in the normal way."

Legal challenge

The usual limit for bonuses set by the EU is equivalent to one year's pay, but the new EU rules allow this to be doubled with shareholder approval.

If a bank has its headquarters in the EU, the cap applies to all staff, even if they are stationed in non-EU countries, the British Bankers' Association (BBA) said.

The Treasury had already launched a separate legal challenge arguing against the EU's right to set any limits on banking bonuses at all, saying that such intervention could lead to an increase in base pay and undermine financial stability.

And Bank of England governor Mark Carney told the House of Commons Treasury Committee he agreed with its opposition to bonus caps.

BBC business editor Robert Peston said the situation created an "awkward twist for the government".

He said: "Although pay levels for bankers have fallen... the sums shelled out still look enormous at a time when earnings for the vast majority of households continue to be squeezed.

Branch sales

The BBC's political editor, Nick Robinson, said the move by Labour was part of its attempt to say that the prime minister and his chancellor "stand up for the wrong people".

On Friday, Mr Miliband is expected to say that forcing the major High Street banks to sell off branches would promote the growth of new firms able to challenge the dominance of the "big five" - RBS, HSBC, Lloyds, Barclays, and Santander.

"We've got to give customers more choice," Chris Leslie told the BBC.

But banking analyst Ralph Silva said: "What makes anybody believe that there's a queue of people willing to buy these branches? New and smaller banks - they don't want more branches, they want more apps. There's no market for branches out there."

He argued competition would only increase if new players, such as supermarkets, and car companies, entered the market.

The BBC's Newsnight reported Mr Miliband may suggest a cap on the size of banks, possibly based on their UK market share.

However, business sources told the programme such an intervention was another example of an anti-business sentiment in the Labour Party.