Osborne's ring fence will be made of cheese wire

Power to break up the banks.

So Osborne is going to "reset the banking system". A difficult thing to do with trust between Westminster and the banks at an all time low. How is he going to do it?

Well, first there's going to be a ring-fence: but it's to be not so much electrified as made of cheese wire - if banks don't respect it, regulators will be able to break them up.

It's not just about the fence though - he also plans to make the banking sector more competitive by making it easier to switch bank accounts, and by introducing a new regulator who'll aim to help out new competitors who want to enter the game. There are also talks over how consumer power can be increased, to hold the banks in check.

There is a plus side for the banks: the leverage ratio won't be changed beyond 1:33, but as might be expected, they have not taken kindly to the news:

Anthony Browne, the head of the British Bankers' Association said:

This will create uncertainty for investors, making it more difficult for banks to raise capital which will ultimately mean that banks will have less money to lend to businesses.

"What banks and business need is regulatory certainty so that banks can get on with what they want to do, which is help the economy grow. This decision will damage London’s attractiveness as a global financial centre.

"Uncertainty" isn't really the issue though - banks have been under changing regulation since 2008. The main problem for the banks will now be flexibility, according to Credit Suisse analysts (via FT Alphaville):

Reducing options to transfer capital and funding – As we understand it, banks will be under tight scrutiny to implement strictly a ring-fence. This will clearly limit the flexibility for banks when setting-up their ring-fence plans and limit options to transfer capital and funding. Although this is hard to estimate at this stage, this could increase the overall costs of the reform for the industry. We currently do not have an impact in our estimates.

If ring-fence is to work, it needs to be enforced - but as banks make their money by finding their way around such restrictions, a truly impenetrable fence'll cost. Here is a summary of the estimated hits to the economy via FT Alphaville:

Estimates costs from implementation – The draft legislation published in October 2012 highlighted the following costs for the broader industry and economy: (i) on-going costs of £2-5bn per annum, which compares to our total profit £26.1bn for the five listed UK banks in 2014E; (ii) one-off transitional costs of £1.5-2.5bn; (iii) negative GDP impact of 0.04-0.1%; (iv) reduced tax receipts of £150-400mn (this assumes all bank costs are passed onto the consumer); and (v) a reduction in the value of the government’s shareholdings in RBS and Lloyds Banking Group in the range of £2bn to £5bn relative to a ‘do nothing’ baseline scenario (compares to current value of £45.1bn).

If banks don't respect the fence, regulators will be able to break them up. Photograph: Getty Images
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Sir Ivan Rogers: UK may wait until mid 2020s for an EU trade deal

The former ambassador to the EU had previously warned his colleagues about Brexit negotiatiors' "muddled thinking". 

Brits may have to wait until the mid 2020s for a free trade deal with the EU, UK's former ambassador to Brussels has warned.

Sir Ivan Rogers, who quit abruptly in January after warning of "muddled thinking", gave evidence to the Brexit select committee. 

He told MPs that his Brussels counterparts estimated a free-trade agreement might be negotiated by late 2020, and then it would take two more years to ratify it.

He said: "It may take until the mid 2020s until there is a ratified deep and fully comprehensive free-trade agreement."

The negotiations could be disrupted by the "rogue" European Parliament, he cautioned, as well as individual member states.

"Canada [the EU-Canada trade deal] not only nearly fell apart on Wallonia, it nearly fell apart on Romania and Bulgaria and visas," he said. 

Member states were calculating what the loss of the UK will mean to their budgets, he added - although many were celebrating the end of Britain's much-resented budget rebate. 

He also thought it unlikely the EU member states would agree to sectoral deals, such as one for financial services, if it meant jeopardising the unity of the EU negotiating position. 

In his resignation letter, which was leaked to the press, Rogers told his staff that "contrary to the beliefs of some, free trade does not just happen when it is not thwarted by authorities"and that he hoped they would continue "to challenge ill-founded arguments and muddled thinking".

Rogers said the comment was about "a generic argument on muddled thinking", which applied to "the system". He described how the small organisation he initially headed had been swamped by new arrivals from the newly-created Department for Exiting the EU.

The new recruits were enthusiastic, he said, but "they don't know an awful lot about the other end".

The UK needed to understand "we're up against a class act with the European Commission on negotiating", he warned. 

He said that if the UK reverted to World Trade Organisation rules - the option if it cannot agree a trade deal - it would enter a "legal void".

"No other major player trades with the EU on pure WTO terms," he said. "It's not true that the Americans do, or the Australians, or the Israelis or the Swiss."

The US has struck agreements "all the time" with the EU, he explained: "A very significant proportion of EU-US trade is actually governed by technical agreements."

Once the UK leaves the EU, it will be treated as a "third country", he added. This meant that the UK would need to get on a list to be allowed to export into the EU. Then individual firms would have to be listed, and their products scrutinised.

Rogers revealed he had debated "endlessly" with colleagues about the UK's relationship with the EU. "The core of the problem is not day one," he said. "The problem is day two, or day two thousand. What have you just captured your sovereignty and autonomy for?" Simply getting access to the single market would not mean a level playing field with EU companies, he explained.

He said: "The European Union is not a common sense agreement. It's a legal order."

Julia Rampen is the editor of The Staggers, The New Statesman's online rolling politics blog. She was previously deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines.