3,700 Royal Bank of Scotland staff face the axe as break-up revealed

HUNDREDS of Scottish jobs are under threat, after Royal Bank of Scotland announced plans to shed 3,700 posts at branches across the UK.

Union officials have warned that the job losses over the next two years will disproportionately hit Scotland, where the majority of RBS branches are.

The news came ahead of a statement today by Chancellor Alistair Darling, in which he is expected to announce plans to pump a further £25 billion into RBS and £5bn into Lloyds.

The extra funding is on top of the £37bn put into the banks last year to stop them collapsing. It means the government's share in RBS will rise from 70 per cent to 84 per cent.

The additional funding will come as part of an overall shake-up, which will see assets from both RBS and Lloyds sold off and Northern Rock broken up in the next three to four years.

The move has been forced through following pressure from EU commissioner Neelie Kroes, who has asked for the break-up to boost competition in the UK banking market.

RBS is set to have to sell its insurance offshoots, Churchill, Direct Line and Green Flag. It is also expected to shed 312 RBS-branded branches in England and six NatWest branches in Scotland, as well as part of its investment banking business – more than it first envisaged.

Lloyds Banking Group is likely to have to sell Cheltenham & Gloucester, its Lloyds TSB network in Scotland and its Intelligent Finance online bank.

Last night, leading Scottish investment banker Ben Thomson broke cover to declare his interest in a plan to buy up TSB, to create an independent Scottish financial institution.

Virgin is interested in looking at some of the assets, while Tesco, Santander and National Australia Bank are also possible suitors.

RBS may insure up to £280bn under the government's Asset Protection Scheme, less than the initial agreed figure of £325bn. The deal could free the bank from the insurance scheme within a year and could see it dodge the upfront fee of £17.5bn. In return, it would have to agree to absorb £60bn of losses on assets insured by the scheme, rather than just under £20bn, which was part of the original proposal.

The 3,700 job losses announced by RBS will come from its branches across the UK. They will be accompanied by an increase in internet banking and the installation of modern cash-point machines that allow people to conduct personal banking without assistance.

Unions say the cuts will affect the 652 RBS branches more than the 1,625 RBS-owned NatWest ones, because of its more branch-centred customer services. And with 340 RBS branches in Scotland and 312 in England and Wales, the cuts are expected to be worst north of the Border.

Unite expects that axe to fall mostly on branch telephonists, and that will also have a greater impact on RBS. Currently, RBS takes most of its customer calls at individual branches, while NatWest mainly uses call centres.

A spokesman for Unite said: "We expect these cuts to affect branches across the UK as a whole, but we believe Scotland may get a disproportionate hit as a result."

The union privately believes there may be a "rush for the door" in some parts of RBS's empire because of its problems. But it is worried about compulsory redundancies, especially as RBS has refused to rule them out. It also fears staff in rural branches, who may be less willing to go, could be worst affected.

Unite national officer Rob MacGregor described the axing of front-line branch staff as "madness". He went on: "Essentially, RBS has decided that front-line costs should be cut, to fund the crisis caused by the City bankers."

RBS said that it had started a consultation period and that there would be no job losses until May 2010.

Brian Hartzer, chief executive of RBS's UK Retail, Wealth Management and Ulster Bank Group, said the job losses were "regrettably necessary".

He said: "We need to do better for all our customers and shareholders by modernising the way we operate as a bank.

"We have 30 per cent more staff carrying out administrative duties per customer than our competitors, and they spend less than half their time dealing with customers – we can and must do better. We have under-invested in our branches and customer infrastructure at a time when people are changing how they bank and changing what they expect their bank to do for them."

Finance secretary John Swinney welcomed a commitment by RBS to minimise compulsory redundancies, but he described the announcement as "disappointing".

He promised to engage with RBS to identify appropriate intervention. "If necessary, we will concentrate on ensuring that every individual obtains the full support of government agencies to help them find alternative employment or upskilling opportunities," he said.

"Through our Partnership Action for Continuing Employment initiative, we will focus on keeping people in work or giving them skills to develop their careers."

But he also insisted: "Scotland continues to have real strengths in financial services, with recent announcements from Tesco Banking and Ensure giving us cause for optimism."

However, Scottish Liberal Democrat leader Tavish Scott said: "It doesn't matter what the Chancellor or the First Minister say, or how big the taxpayers' investment is. Every taxpayer, not just in Scotland but across the UK will wonder what their money is being used for as thousands of banking jobs continue to be lost."

He added: "We warned that the banking shambles would have a massive impact on the ordinary men and women in the branches in Scotland."

Scottish Labour leader Iain Gray said: "We will work with the unions, and if there are any job losses that are not voluntary, RBS must fully justify them. It is crucial that the Scottish Government sits down with RBS as quickly as possible to see what contribution they can make to mitigate any job losses."

Last night, RBS's share price had dropped 3.27p, or 7.8 per cent, to 38.65p, following the jobs announcement.

Jonathan Jackson, head of equities at Killik and Co in London, predicted more turbulence. He said: "Uncertainty over the path of economic recovery, combined with a lack of visibility over the potential for further credit losses, means an investment in either RBS or Lloyds remains very high-risk, and we would expect both stocks to continue to exhibit a high degree of volatility over the next few days."