Chancellor set to unveil serious banking shake up

George OsborneMeasures to give savers extra security if a bank fails will be announced by the Government on Thursday as part of major reforms for Britain's banking system.

Chancellor George Osborne will unveil his long-awaited banking White Paper, which follows last year's recommendations by the Independent Commission on Banking (ICB), led by Sir John Vickers, on how to make the sector safer and give greater protection to depositors.
In his annual Mansion House speech, 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 ICB'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 ICB proposals to ring-fence depositor cash from riskier operations and investment banking.

The Government is planning to broaden the range of activities allowed within ring-fenced businesses. This will include simple hedging tools, such as those to protect consumers from interest rate and currency fluctuations, as well as loans to small businesses. The move is likely to be welcomed by banks, which have lobbied hard for a wider scope of allowed activities.

But the Government is not shying away from key plans put forward by the Vickers commission to give savers preference. The banking sector has argued it would push up the cost of business loans and mortgages, as bondholders could demand banks pay higher interest rates to offset the greater risk.

The British Bankers' Association argues that the depositor guarantee scheme - under which £85,000 of deposits per person is insured - is adequate to offer consumer protection. Chief executive Angela Knight warned the reforms could hurt the banking sector and have a knock on effect on the wider UK economy.

The plans will remain open for further consultation before draft legislation due in the autumn, with plans for the final legislation to be in place by the 2015 election, which will allow the reforms to be enacted. Some changes are already being phased in, with a final deadline for all reforms to be in place by 2019.

Richard Lloyd, executive director of consumer group Which?, said: "The Banking Reform White Paper and plans to ring-fence high street banking from riskier investment banking should be a major step towards restoring consumer confidence and transforming the culture of banking."

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Chancellor set to unveil serious banking shake up

Figures from charity Age UK show that 29% of those over 60 feel uncertain or negative about their current financial situation - with millions facing poverty and hardship.

Even though saving for retirement is not much fun, the message is therefore that having to rely on dwindling state benefits in retirement is even less so.

To avoid ending up in this situation, adviser Hargreaves Lansdown recommends saving a proportion of your salary equal to half your age at the time of starting a pension.

In other words, if you are 30 when you start a pension, you should put in 15% throughout your working life. If you start at 24, saving 12% of your salary a year should produce a similar return.


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