The UK Treasury said the European Commission has accepted in principle the British government’s plans to free Royal Bank of Scotland from an obligation to sell more than 300 branches — ending a seven-year fight by RBS to meet conditions for its £45.5 billion state bailout.

The deal means the UK government has moved another step closer to selling some of its 71% stake in RBS.

RBS said: “This revised package will be submitted to the EC’s College of Commissioners for approval and if agreed will form the basis of a new term sheet in relation to RBS’s remaining State Aid commitments.

“It is expected to come into effect during H2 2017, upon which  RBS will no longer be obliged to achieve separation and divestment of the business previously described as Williams & Glyn by 31 December 2017.”

The UK government said it improved a package of measures announced in February to make sure that it “delivers its pro-competitive objectives” and is equivalent to the divestment of Williams & Glyn, as mandated in 2009.

“A plan to resolve RBS’ final state aid commitment, worth approximately £835 million, has been agreed in principle between the UK Government and Commissioner Vestager of the EU Commission,” said the Treasury.

“It will see RBS fund and deliver a package of measures to improve the UK business banking market and is designed to boost competition, helping small and medium sized enterprises (SMEs) benefit from greater choice and offers on banking services.

“The measures will also help address potential distortions in the UK business banking market that resulted from state support for RBS.”

Economic Secretary to the Treasury, Stephen Barclay said: “The announcement today will help boost competition in the business banking market and marks another significant milestone in resolving a major legacy issue at RBS.

“It builds on the recent settlement with the Federal Housing Finance Agency and together they show the progress being made to resolve RBS’s outstanding issues.”

RBS CEO Ross McEwan said: “We welcome the progress that HMT and the EC Commissioner responsible for competition have made on agreeing an alternative package of remedies to increase competition in the SME marketplace.

“We await a formal decision on this proposal which would allow us to resolve our final State Aid divestment obligation.”

The Treasury said the revised package consolidates the previously announced remedies into two enhanced measures:

• a £425 million Capability & Innovation Fund, administered by an independent body, comprised of 15 grants that eligible challenger banks and other financial services providers can compete for to increase their business banking capabilities. These awards will range from £5 million to £120 million.
• £350 million of funding to incentivise SMEs to switch their accounts from the business previously described as Williams & Glyn to eligible challengers, comprised of £225 million paid in the form of “dowries” to challengers to use to incentivise SMEs to switch their business current accounts, £50 million to facilitate the switching of related loans, and £75 million set aside by RBS to cover customers’ switching costs.

RBS will also fund £60 million of additional costs.