‘Watchdog has succeeded in breaking stranglehold of ‘the big four”
September 5, 2007 at 10:14 am
The UK’s Competition Commission has decided to lift pricing controls on the banking sector that have been in place since 2003. The controls were designed to limit the dominance of four of the UK’s largest banks on the market for small business bank accounts.
After a study in 2002, the Office of Fair Trading discovered that between them, Barclays, Lloyds TSB, HSBC and Royal Bank of Scotland controlled 92% of small and medium-sized bank accounts. This fostered an uncompetitive environment – customers were reluctant to move their accounts because of charges levied by the existing bank and lengthy bureaucratic procedures.
Deputy Chairman of the Competition Commission, Christoper Clarke, stated:
“Having reviewed the evidence and advice from the OFT, we believe that these price controls are no longer appropriate. They were intended to be temporary and have now been in place for over four years… banks providing SME (small / medium sized enterprise) banking services will have to continue to comply with the undertakings on the ease of switching, transparency of prices and the prohibition on bundling of different products and services. The OFT will continue to monitor their compliance.”
These price controls, the commission argues, have paved the way for entry into the market place from banks such HBOS, Alliance and Leicester, and Abbey, who have managed to swipe 7% of the market share – leaving Barclays, Lloyds TSB, HSBC and RBS with 85%. The OFT and CC have been criticised by consumer groups and the competing banks, saying the price controls have been unhelpful. HBOS, for example, offered interest on current accounts and free transfers before the controls were introduced. A spokesman for HBOS said that only 1 in 10 small businesses moved their account in the last 4 years, with excessive red tape acting as the main disincentive.
“Price controls have clearly done little to encourage small businesses to switch banks, and the hassle factor of switching has still to be addressed,” he said.
The Federation of Small Business also criticised the decision, saying that in reality, nothing had really been achieved. The major four banks have not been complying with the spirit of the controls, preferring to pay lip service, whilst making it as difficult as possible for small business to change their banking facilities. Mike Cherry, spokesman on Financial Affairs at the Federation of Small Business, said,
“We are utterly bewildered by the Competition Commission’s provisional decision. We have provided concrete evidence that the big four banks are not complying with the undertakings … and the Competition Commission appears to have completely ignored it.”
The Competition Commission is an independent body (ie, not a government agency). However, it does work in very close proximity to the Office of Fair Trading, which is governed by the Secretary of State for Trade and Industry. Decisions such as the one discussed here are the result of consultation between the two bodies.
The CC’s statement concerning this decision (which is currently provisional) is available here. You can access the 2002 report which triggered the controls here.
