The Treasury has put forward plans to the European Union which could spare Royal Bank of Scotland from being forced to sell off Williams & Glyn.

The lender has struggled to offload the W&G branches, which it is required to do by the end of the year under the EU's state aid rules.

Now the Treasury and RBS have proposed an alternative £750 million plan to boost competition in the banking market in an attempt to appease officials in Brussels.

RBS is required to sell W&G as one of the conditions for the multibillion-pound bailout by the UK Government following the banking crisis, but has struggled to strike a deal.

The Treasury has been in talks with the European Commission (EC) for months about the situation and will now seek formal changes to the state aid commitments.

Competition commissioner Margrethe Vestager will propose to the College of Commissioners that they open proceedings to gather evidence on the new plan, which contains a number of measures aimed at helping small and medium-sized enterprises (SMEs)

RBS chief executive Ross McEwan said "Today's proposal would provide a path to increased competition in the SME marketplace. If agreed it would deliver an outcome on our EC state aid divestment obligations more quickly and with more certainty than undertaking a difficult and complex sale and would provide much-needed certainty for customers and staff."

The proposed package, which would cost RBS an estimated £750 million, involves:

: : A fund, administered by an independent body, which challenger banks can access to increase their business banking capabilities

:: Funding for eligible challenger banks to help them woo SMEs to switch their accounts from RBS

:: RBS granting business customers of eligible challenger banks access to its branch network for cash and cheque handling

:: An independent fund to invest in financial technology firms

A Treasury spokesman said: "RBS must deliver on its remaining state aid commitments and this new plan represents the most effective way of delivering the pro-competition objectives behind them.

"This new plan provides a clear blueprint to increase competition in the UK's business banking market, and would help RBS resolve one of its most significant legacy issues which has held back the sale of the taxpayers' stake."

Chancellor Philip Hammond has already said the Government does not expect to offload its 72% stake in RBS until after 2020.