Banks called to account for overcharging

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The Independent Online

The Government ordered a monopoly inquiry into Britain's banks yesterday after an official investigation concluded they were overcharging every household by up to £400 a year.

The Chancellor, Gordon Brown, who will announce further measures to attempt to curb the banks' excessive profits in his Budget today, and Stephen Byers, the Secretary of State for Trade and Industry, referred the industry to the Competition Commission.

A report by the former telecoms watchdog, Don Cruickshank commissioned by the Chancellor, accused the banks of charging personal and small business clients between £3bn and £5bn a year too much.

In the Budget, the Chancellor is expected to announce a shake-up of the banks' monopoly over money transmission, and tougher regulation to force them to open up more to competition, including measures to do more to encourage those on welfare benefits to take bank accounts. But the Treasury has ruled out a windfall profits tax.

Mr Cruickshank had said there would be no improvement unless there was root-and-branch reform of the banking sector and the way it is regulated. "My main finding is that banks have unnecessary market power that they have been able to use over the last four to five years to make supernormal profits," he said.

His findings led to attacks on banks three weeks ago for overcharging by more than £2 on withdrawals from cash machines. Mr Cruickshank said a fairer charge was nearer 30p. Ministers were given his draft findings on other bank operations last week and agreed their action over the weekend.

Mr Byers avoided accusing the banks of being part of "rip- off Britain" because he will have to respond to the Competition Commission report, but it was clear the Government was alarmed by the findings.

High street banks are charging "far too much" for credit cards, savings accounts and personal loans, said Mr Cruickshank. The industry was not doing enough to embrace the new economy.

His inquiry found evidence of widespread customer dissatisfaction. They complained of high charges, difficulty moving accounts, and poor services.

"All banks are the same" was a frequent refrain, Mr Cruickshank said. "In 1998, three UK banks made more profit than the UK's five publicly traded supermarket companies added together." The fact that the big four - Barclays, NatWest, HSBC, and Lloyds TSB - have 68 per cent of Britain's current accounts and 78 per cent of all credit cards issued, highlighted the need for "radical reform".

Three banks control 78 per cent of the market for processing retailers' credit cards transactions, resulting in higher costs which the ordinary retail customer has to bear.

Mr Cruickshank said: "I am saying to the Government that there are real problems with the way banks control the networks which allow money to flow around the economy, whether it be cheques, credit and debit cards or electronic transfers, big and small.

"And there are real problems with the way banks serve small business. New banks and new technology are not solutions. So government, step in."

He added: "Banks write the rules to suit themselves."

Mr Cruickshank called for a new payments watchdog called PayCom, to break the stranglehold the big four banks have over current account and credit card business.

He also called for changes in regulations to allow new banks to enter the market, and allow banks that fail their customers to go bust. He also urged the Government to put a brake on mergers within the sector.

The big banks said they were disappointed by the decision to refer small-business banking to the Competition Commission.

Mike Fairey, deputy group chief executive of Lloyds TSB said: "Competition has never been so fierce. The landscape is changing beyond recognition as we witness an explosion of new entrants."