Royal Bank of Scotland could be made to sell more than 300 branches by the European Commission as a penalty for receiving billions of pounds of state aid. Negotiations between the Treasury, the Commission and RBS, which is 70 per cent owned by the taxpayer, were last night intensifying.

The Government is understood to back a plan which would involve RBS giving up its 312 branches under the RBS brand in England and Wales. It would keep its NatWest branches.

RBS has made plans to re-brand its RBS network south of the border under the Williams and Glyn’s name, a brand that disappeared from the high street 24 years ago.

Neelie Kroes, EU Competition Commissioner, may want to push RBS even further. Although her term of office expires at the end of the month, the Commission can continue to make decisions on state aid after that date.RBS’s 30 per cent share of the small business banking market has come under intense scrutiny by Brussels.

The bank said last night it was “working towards a solution with the European Commission”. Selling the branches to a rival, or listing them separately on the Stock Exchange, could diminish the value of the taxpayer’s stake in the bank.

Lloyds Banking Group, 43 per cent owned by the taxpayer, is under pressure by the Commission to shrink its share of personal accounts, where it is the No 1 operator in Britain with 22 million customers.

At the same time, the Treasury is trying to finalise details of the banks’ participation in the Government-backed asset protection scheme. The plan to create a giant insurance scheme for the toxic assets of Lloyds and RBS was announced in February. RBS is set to put £325 billion into the APS, while Lloyds is believed to be planning a rights issue to reduce its participation.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive