The government's official position is stasis. The coalition agreement made provisions for "an independent commission to investigate the complex issue of separating retail and investment banking in a sustainable way." But, unsurprisingly, there appears to be a difference of opinion behind this. Vince Cable has consistently pushed for a complete Glass-Steagall style separation of investment and retail banking, and recently said that this "is the clear direction in which we are going". While George Osborne has never been as explicit, and is thought to be far less convinced by the idea.
Curious thing is, the Tories may have sketched out a happy compromise even before they entered into coalition. In a series of speeches and an important White Paper, Osborne didn't advocate splitting the banks, but he did suggest a series of measures which would impose greater requirements on high risk activities. As I said at the time, it was a kind of de facto, rather than de jure, Glass-Steagall. And it's the kind of thinking whose time may have come.