The chancellor is to vow to stop problems created by the financial services industry from threatening ordinary taxpayers as he sets out plans for a reform of British banking.
In the annual Mansion House speech on Thursday evening, George Osborne will commit to implementing measures recommended by Sir John Vickers late last year, including proposals to force banks to ringfence their retail operations.
“We are fundamentally reforming the structure of our banking sector,” he plans to say. “We’ve got to stop problems here in the City of London spilling on to our high streets and putting taxpayers’ money at risk.”
The government is to publish a white paper in advance of the speech that will provide more details on implementing the key recommendations of Sir John’s Independent Commission on Banking.
It is expected to say it has resisted industry pressure to row back from reform and will press ahead with the vast bulk of proposals in a way that does not undermine the competitiveness of the UK.
The government is set to hand one large concession to the banks by allowing them to conduct a broader range of activities within the ringfenced business.
It will say that simple derivative products – such as hedging tools designed to protect businesses from interest rate and currency fluctuations – will be permitted where they are part of regular banking services for small businesses.
This will be particularly beneficial for Santander UK and Lloyds Banking Group, two predominantly retail institutions that have warned that separating these activities out could raise costs for customers.
Banks will have to give retail savers priority over other creditors through a new “depositor preference” scheme, aimed at transferring risk away from taxpayers if a bank fails.
Consumers should also benefit from measures to stimulate competition in the retail market, including easier account switching.