More than four years in the making, the Competition Commission's report into small business banking at last holds out the prospect of a better deal for SMEs. The Chancellor of the Exchequer, Gordon Brown, has accepted all the report's recommendations; changes are expected within three months.
Improvements include interest on business current accounts or free money transfers, services long enjoyed by personal banking customers but which are the exception rather than the rule for small company accounts. The report comes more than four years after a Treasury-backed review of banking, headed by former telecoms regulator Don Cruickshank, started work. The Competition Commission's own investigation, into the "complex monopoly" operated by the big four clearing bank groups, has taken 18 months.
The Treasury believes banks in England and Wales have made more than £725m a year in excess profits from small businesses over the last three years. Scottish banks were cleared of profiteering, and will not be covered by price controls.
The most immediate impact will be felt by small businesses with current accounts. Within the next three months, the banks will either have to abolish fees for "money transmission" services, such as clearing cheques, or pay interest to customers who are in credit. Interest will have to be no less than 2.5 per cent below the Bank of England's base rate. Currently, this means small businesses will earn 1.5 per cent on their account balances.
Of the four banks named in the report, Barclays, Lloyds TSB and HSBC condemned some or all of the findings. HSBC said the new price regulations are "not consistent with a market economy and may serve to restrict choice and innovation for UK businesses." RBS, which owns NatWest, the market leader in business banking, has so far declined to comment on the report.
The banks have been given nine months to produce a report on how they will make it easier for customers to transfer accounts where they have a secured loan; this will include measures such as a portable credit reference that a business can carry from bank to bank when it comes to applying for loans. So far, no deadline has been set for speeding up more straightforward switches.
The ruling on switching, though, has been welcomed by small firms. According to the Federation of Small Businesses (FSB), it currently takes five to six weeks to move a business bank account. Nor are the "big four" the only offenders here: moving accounts between newer competitors, such as Abbey National, HBOS or the Co-operative Bank can take just as long.
"Clearly at the moment the majority of businesses find it hard to switch banks," says David Bishop, spokesman for the FSB. "The banks will tell you that it is already fairly easy to switch bank accounts, and that they are not trying to stop you. If that is true, then the switching requirements will be quite easy to meet."
To be fair to the banks, part of the problem lies with companies handling direct debits rather than the banks themselves. This is a significant problem, not least because many small businesses pay as many bills as they can by direct debit due to lower bank charges for automatic transactions.
The banks have been given 12 months to produce a progress report on the direct debit question. They will also have to produce clearer information on their tariffs.
Whether the OFT's measures will change the way small businesses view their banks remains to be seen. "If you are getting good service, you will not want to switch," says David Bishop at the FSB. "If you can pick up the phone and talk to someone who knows what they are doing, you will stay with your bank."Reuse content