Miliband’s bank break-up plans will hurt poor, claim banks

Britain's biggest banks have warned that they would be forced to dump unprofitable customers and close banks in poorer areas, under plans to reform Britain's banking industry being proposed by Labour today.

Ed Miliband will this morning announce proposals to force some of Britain's biggest banks to split up with a new cap put on the market share any one bank can hold.

But senior banking sources warned this would force them to dump "low quality" customers in order to stay within the cap.

They also warned the proposals could see many bank branches closing in poorer areas.

Miliband will argue that there is far too little competition in the banking industry and claim that his plans would encourage far more lending to small businesses.

"Britain has one of the most concentrated banking systems in the world, with just four banks controlling 85% of small business lending," he will say, adding that " too much power is concentrated in too few hands."

He will pledge to create at least two new "challenger banks" and set up a new "national credit register" to encourage banks to lend to more small businesses.

The head of the Bank of England has already dismissed the plans.

"Just breaking up an institution doesn’t necessarily create a more intensive competitive structure," Mark Carney told MPs, adding that "It’s not just about one aspect, you need to look at the whole business model and their risk structure."

Big business also attacked the proposals today.

"An arbitrary cap on structure is the wrong way to boost choice in banking," Confederation of British Industry director John Cridland said.

"The focus should be on ensuring that businesses and consumers can access the finance they need, not a debate on structures, which is the responsibility of the competition authority not politicians."

Labour today admitted their proposals would damage bank's share prices, even before they came into effect.

"I'm not denying in the short term that you may see a hit on the share price of these banks," shadow business secretary Chuka Umunna told the Today programme.

"It's probably happening as we speak now."

"But the reason we're doing this is so that we can grow our small businesses, which not only create in and of themselves more middle income jobs, so we actually get people earning more, but also they're very important feeders in the supply chain for our larger businesses."

The Conservatives today dismissed the proposals as "not credible" and accused Labour of trying to fix a problem the party had themselves created in government.

"Ed Miliband is complaining that his own mess isn't being cleaned up fast enough," Treasury minister Sajid Javid said.