An independent report into banking has recommended some of the most significant changes to the sector in decades.

The final report of Sir John Vickers' Independent Commission on Banking has called for a strict 'ring-fencing' of retail and investment arms within banks.

In theory the changes would would mean the investment arm of a bank could be allowed to fail without the need for the government to step in with taxpayers money.

Retail subsidiaries of banks will be made legally, economically and operationally separate from the rest of the banking groups to which they belonged.

The government is expected to adopt the measures but there is some tension between the Conservative and Liberal Democrats over the timetable for making the changes.

The report argues structural separation would help sustain the UK’s position as a "pre-eminent international financial centre" while making UK banking more resilient.

The commission was set up in 2010 by the government to examine how Britain can avoid another crisis of the kind that led to the taxpayer having to bail out several leading banks, including RBS and Lloyds.

But opponents of the plan have warned it could lead to higher costs for customers and damage the recovery of the economy.

Speaking shortly after the publication of the report, the Chancellor George Osborne said: "The Commission has tackled that big question we face in Britain... how can we be a home to successful banks while at the same time protecting us as taxpayers if they go wrong. This government set up this commission to ask the questions that frankly should have been asked a decade ago.

"John Vickers himself sets out a timetable and I intend to stick to his timetable. There are a lot of changes involved so this will take some time."

George Osborne said legislation would be introduced during the current parliament, due to end by 2015. In its report the ICB said banks should be encouraged to implement reforms as soon as possible, but changes should be completed by the start of 2019.

However the Liberal Democrat business secretary, Vince Cable, has made it clear in recent days he expects the reforms to be introduced much sooner and wants them attached the the Financial Services Bill currently making its way through Parliament.

The ICB said the reorganisation could result in a cost of between £4bn and £7bn for Britain's banks.

But writing in the Mail on Sunday, Cable warned the banks the recession was "not an excuse for postponing banking reform".

Vickers said that his reforms were "fundamental and far reaching" but dismissed fears that the changes would cause banks to flee London to escape the new regulations.

"One of the merits of the ring-fencing idea is by securing UK domestic banking in that way we can have international standards apply to the international operations of the banks," he said on Monday.

The Confederation of British Industry (CB) has warned the government not to press ahead with the proposals too quickly.

"The UK is going it alone on ring-fencing, so the government must rigorously examine how and when to implement these proposals, otherwise it risks damaging businesses and threatening growth," the CBI said.

While the Unite union said the ICB report was a missed opportunity and was nothing more than a "weak gesture".

The union said: "The glaring omissions on workforce engagement and meaningful changes to remuneration systems within banking means that this report is another missed opportunity in preventing a repeat of the financial crisis in the future.

"Simply creating a firewall is, at best, a weak gesture and, at worst, a pointless act which will not in any material way impact the behaviour or culture at the top of the banks where this crisis was born."

And Labour MP John Mann, a member of the Commons Treasury Committee, also attacked Vickers for failing to consider building societies

"Banks are modelled to respond to share holder pressure and this used to be countered by the stable presence of the building societies when they represented more than 30% of the market place," he said.

On Sunday, Labour leader Ed Miliband unveiled a plan to introduce a code of conduct into banking which will allow bankers to be struck off in the same way as doctors.

Miliband also called for greater transparency on pay and bonuses and more competition in the industry to encourage lending to small businesses.

He said that banks and the government needed to learn the right lessons from the financial crisis to ensure it did not happen again.

''We must not send a signal to banks or any other institution that they can go back to business as usual, particularly at a time when the hard-working majority in this country – who were not responsible for creating the crisis – are being asked to pay the bill in terms of Tory VAT rises and cuts in public services," he said.

He said: ''The Vickers commission therefore should be seen as a first stage of reform not an end-point. There will still be an unfinished revolution in this industry even when its recommendations have been implemented."

"The need for a significant mutually owned share of the banking industry is paramount and the Review has missed the point by not addressing this”.