Ministers should create a new mutual bank to compete with the big four banks for business and individual clients. Williams & Glyn could be hived off from the Royal Bank of Scotland to achieve this but the government, desperate to privatise RBS, is trying to persuade the European Commission to let the state-owned lender keep Williams & Glyn; creating a fund to help challenger banks instead.

Whilst there have been many reforms to banking since the 2008 crash, one fundamental problem has not altered, and that’s the lack of competition among the big banks. There have been a number of new banks setting up online or on the high street, but these are a long way off from gaining significant market share.

A fund to help challenger banks expand is not a bad idea. It just isn’t going to create meaningful competition in financial services anytime soon. Key to having a competitive banking market is having different types of financial institution – traditional banks, yes, but also building societies and mutual banks as well.

Building societies such as Nationwide are still significant players in the residential mortgage part of the banking market, with the sector representing a third of all mortgages provided in the last quarter of 2016, but the de-mutualisation of some of the then largest societies in the 1980s and their takeover by banks seriously eroded competition in key parts of the financial services and banking industry.

One option that exists to begin to alter this concentration of ownership is the forced sale of Williams & Glyn, which is currently part of RBS. Following its bailout in 2008, EU regulators have told RBS they have to divest themselves of Williams & Glyn by the end of 2017. Complications with the cost of IT systems mean that possible buyers have to date not taken forward their interest, giving the government another chance to take a more long-term strategic view of Williams & Glyn’s future.

Given the benefits of building societies and mutuals in helping to generate competition in banking and, crucially, long-term stability in financial services as Cass Business School has identified, creating a new building society or mutual bank would provide the chance to create a new (re-)entrant to Britain’s banking market with the market share to make a difference; if its ownership meant it had to be profitable and yet not focused on short-term profitability.

As a mutual bank, Williams & Glyn could continue in its current form, without the restrictions building societies face on funding and lending, but able to bring the benefits of mutuality to consumers in small business lending and other retail financial services. As in the separation of TSB from Lloyds Banking Group, a new Williams & Glyn could share systems with RBS Group for an extended period if required. The separation is a necessary condition of meeting EU state aid rules so has to be done in any event.

Mutualising Williams & Glyn could take a number of forms, including the government holding a golden share to prevent future demutualisation.

Across Europe mutual banks play an active role in challenging shareholder owned banks, focussing on personal and small business customers, with their core values of solidarity and proximity. It’s part of the reason why European banking markets didn’t have the same level of problems in 2008 as our City of London saw. The suspension of the privatisation of RBS, the difficulties in offloading Williams & Glyn and the sale of the one major mutual bank mean competition in British banking is set to worsen unless radical action is taken.

Isn’t it time Williams & Glyn became a new mutual bank?

Gareth Thomas is MP for Harrow West and chair of the Co-operative Party.