LLOYDS Banking Group will not be protected from any plans to break up Britain’s banks – despite being told it would be rewarded for buying HBOS in its darkest hour, business secretary Vince Cable has warned.
Eric Daniels, Lloyds’ boss, has claimed that government officials said Lloyds would be allowed to hold on to HBOS assets because of the “short-term financial pain” it experienced when it snapped up the ailing bank in 2008.
Sources close to the deal, which was masterminded in the depths of the banking crisis, said the government had proved its commitment to a merged Lloyds and HBOS “superbank” by changing competition law to allow the merger to go through.
They also said that it is hard to believe that the government will try and divide it up again after making such a commitment, saying: “It’s not as if it’s an uncompetitive market as it stands at the moment”.
However, Cable fired a warning shot across the bow of Lloyds yesterday, insisting that any guarantees given by the last government would not necessarily be honoured by the coalition.
“I’m not aware of any such reassurance,” Cable said in a Sunday newspaper interview.
The coalition has recruited a Banking Commission to investigate whether the banking system should be restructured to boost competition and reduce systemic risk. Many fear the commission will recommend that large banks are broken up.
Cable said: “My position is that the Banking Commission will operate from a clean sheet of paper and produce a set of proposals to make a safer banking system and provide maximum competition.”
Meanwhile, Cable appears to have won a major victory in the cabinet, after the coalition signalled it would back a graduate tax. Universities minister David Willetts, a Tory and long-time opponent of a graduate tax, was forced into a climbdown on the issue.
He said: “The government [is considering] a graduate contribution, an option that involves graduates after they have got into work making a contribution to the benefits of the university education they’ve received.”