Media playback is unsupported on your device Media caption Ed Miliband: "Either they sort it out for themselves... or Labour will, by law, split those banks up"

Labour leader Ed Miliband has said that if banks do not separate their retail and investment arms, a future Labour government will "break them up".

There needs to be a return to the "best traditions of British banking", Mr Miliband said, where "banks serve the customer" not international markets.

Recommended ring-fencing of retail from investment banking had been watered down by the government, he said.

The Treasury said it was "undertaking radical reform" of the banking system.

The Vickers report into banking, launched in the wake of the financial crisis, last year recommended banks split into two parts to separate the High Street side from the riskier investment side and cut their reliance on borrowed money.

The coalition has already said that all of Sir John Vickers' recommendations will be implemented by 2019.

But if Labour won the 2015 general election and major changes were not in place by then, it would legislate, the Labour leader said.

'Casino operation'

As the party meets for its conference in Manchester, Mr Miliband told BBC1's Andrew Marr Show: "What I want is a country where a small business and an individual going into their High Street bank knows that that bank is working for them, not gambling with their money on the international markets. That doesn't happen at the moment.

"What really worries me is that we're seeing, and we've seen over the last year, a watering down of some of the reforms that the government was talking about to try and make that happen.

"This is a very clear message I have for the banks: Either they sort it out themselves - so that once and for all the High Street bank is not an arm of the casino operation - or the next Labour government will, by law, split those banks up so that once again we return to the best traditions of British banking, which is banks that serve the customer."

Recent scandals over Libor interest rate-rigging and payment protection insurance mis-selling had reinforced the case for change to happen, Mr Miliband said.

The Labour leader said the government's economic strategy had failed and borrowing was increasing. He advocated raising £2bn by taxing banker's bonuses to fund jobs for young people and housing.

The Labour Party conference slogan is "Rebuilding Britain".

He said: "You need a different approach.

"Yes there would be cuts if we were in government, but if you make the pace of those cuts slower, if you take less money out of the economy now it will be better for our economy, better for growth, better for people up and down the country and better for getting the deficit down sustainably."

If Labour were in government now, Mr Miliband said, the first budget change it would make would be keeping the 50p rate of income tax, which is due to be cut to 45p for those earning over £150,000 from April 2013.

"This government is cutting taxes for millionaires by £40,000 a year," he said.

A Treasury spokesman said: "The government is undertaking radical reform of the UK banking system to ensure that the mistakes of the past aren't repeated, that the taxpayer is protected and that the banks support the UK economy."

Since the onset of the global financial crisis, banks and banking regulation have changed completely British Bankers' Association

The British Bankers' Association (BBA) said: "Since the onset of the global financial crisis, banks and banking regulation have changed completely.

"The UK's major banks have committed publicly to further change - to do whatever is necessary to restore financial stability, to play their part in economic recovery and to earn back the trust of their customers."

The BBA said it was currently working with the government and regulators to implement ring-fencing.

On Saturday Mr Miliband told a panel of voters in Manchester that the country faced an "economic emergency".

Among policies he has revealed so far are the replacement of Ofgem with an energy regulator which has tougher powers to ensure prices are fair and a cap on pension fund management fees.

He also signalled that Labour was looking seriously at replacing student fees with a graduate tax and wanted to go still further than the party's existing pledge to reduce them to a maximum of £6,000 from the present £9,000.