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The Treasury is poised to announce a sweeping shake-up of the ring-fencing regime this coming week, in a bid to safeguard depositors at Britain's largest retail banks, as ministers push hard to stimulate economic growth.

According to reports from Sky News, Chancellor Rachel Reeves has given the green light to plans designed to unlock billions of pounds of additional lending capacity at five high street heavyweights. Barclays, HSBC, Lloyds Banking Group, Natwest and Santander UK will all fall under the new rules.

Both government and industry figures have described the changes as a move to dismantle the most significant regulatory burden placed on the UK in the wake of the 2008 banking crisis. A Whitehall source told Sky that a Treasury announcement regarding the plans could arrive as early as Monday, though they warned it may yet be pushed back, as reported by City AM.

The ring-fencing regime compels large banks to separate their retail and SME banking operations from riskier investment and international banking activities, in order to shield retail operations from global financial shocks. However, critics from both industry and government have long argued that the rules hamper economic growth and undermine competitiveness by tying up capital that could otherwise be lent out to drive expansion.

The reforms are expected to be presented by Reeves as a measure to bolster growth without compromising the UK's financial stability or the protection of depositors. Under the proposals, which have been the subject of an industry-wide lobbying drive over the past year, banks will be permitted to carry out a greater proportion of their activities within safer, ring-fenced operations than was previously allowed.

This will encompass lending to public financial institutions, including the British Business Bank and the National Wealth Fund, as well as other potential infrastructure-focused projects. The reform is anticipated to enable Britain's biggest banks to lend at lower funding costs to organisations aligned with the Government's economic policy goals.

Previously, such lending had to be carried out by the non-ring-fenced banks sitting within the five largest UK lenders. Among the other key reforms will be permission for banks to share services between their ring-fenced and non-ring-fenced divisions.

The Treasury has also opted to allow certain hedging activities within ring-fenced banks, and to revise some customer criteria that would enable greater lending activity to be booked inside the ring-fence, according to one official.

Labour is scrambling to placate banks and stimulate growth in a bid to salvage its electoral fortunes, while institutions are bracing themselves for a potential soft-left leader who could hike taxes. The banking sector narrowly avoided a tax rise in last year's Autumn Budget after Chancellor Rachel Reeves sought assurances that lenders would increase lending in the UK and publicly back her fiscal plans. A surge in profits amongst some of Britain's largest banks has sparked demands from Labour's left wing to increase these levies.

Former deputy prime minister Angela Rayner, who is among the frontrunners to succeed Starmer, has consistently backed these demands. Last year she suggested raising the "bank surcharge to five per cent" in an attempt to generate an estimated £1.5bn annually.