Labour's plan to cap banks' market share might be popular but is a blunt instrument to increase competition

Laura Kuenssberg

Former Business Editor

There is still political capital in going after banks Credit: Stefan Rousseau/PA Wire

It's January, so right on cue angst begins over bonuses at RBS.

The bank is talking to its shareholders, the Government, about whether it could and should ask for permission to pay what would have seemed reasonable amounts in the past, that now require asking permission to pay more than bankers' salaries as bonuses.

Most banks will be doing the same but theirshareholders are investors and city institutions. RBS shareholders are rathermore troublesome - it is us.

So Labour has come up with a rather cunning proposal to cause maximum embarrassment to the Chancellor, asking him to swear he won't approve such a move even before the bank has actually asked.

Say no, he looks like he's on the side of wealthy bankers, say yes it makes life harder for RBS than its purely commercial rivals - again.

Read: Miliband to call for limit on banks' market share

Labour's proposal is designed to cause maximum embarrassment to the Chancellor. Credit: PA

Separately, the Government is already fighting the EU commission on the rule that limits bonus to 100 per cent of salary, the argument is that canny banks will just put up salaries instead.

There is anecdotal evidence that this is already happening leading many to ask, what's the point of limiting bonuses like this if total pay will just go up anyway.

But more troublesome potentially, particularly for Lloyds, is Labour's idea to cap the banks share of the market if they win the election.

All politicians agree there should be more competition for our business. But introducing a rule like that is a pretty blunt instrument to make it happen.

And on top of that, it's not necessarily realistic given that people are hardly queuing up to get into the banking business.

Ironically, that is in part because increasing rules and regulations like the bonus cap make it quite simply a more complicated business that is much more hassle, with political scrutiny that may be justified but makes business more difficult.

And in truth, hardly any banks have a share over 25 per cent of the market in any one sector - there is always a danger in creating rules that might be politically popular but are designed for the wrong problem.

But Labour knows full well, as does George Osborne, that there is still political capital in going after banks.

Their behaviour in the past and in some cases still, has made them an easy target. And for that, it promises to make this a difficult day for the Chancellor.

Read: Labour urges block on doubling RBS bonuses