Outlook: Banking review

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The Independent Online
IF THE Office of Fair Trading could find no good reason for investigating the banks, what chance does Don Cruickshank have of discovering anything seriously untoward, still less of coming up with any practical remedies. The luckless Mr Cruichshank, whose other day job is trying to persuade business to prepare for the millennium bug, was wheeled out yesterday to give an "update" on his Treasury inspired review of British banks - and very little he had to say about it too.

The OFT, it seems, was not convinced there was sufficient prima facie evidence of anti-competitive behaviour to merit a competition inquiry. John Bridgeman, felt uncomfortable enough ordering a Competition Authority probe of the supermarkets. With the banks, he put his foot down.

Which is how the whole thing ended up with Mr Cruickshank. Gordon Brown, the Chancellor, is convinced that the banking system is failing small business and failing the British economy, and he's determined to prove it. But if this investigation is not really about competition, what is it about? The line from the Treasury is that banking is an immensely important part of the economy - which is true enough - and, as such, it is vitally important to make sure that the sector works as efficiently as possible.

While this is a laudable enough objective, it is not obvious that Mr Cruickshank's review - which is starting to look in danger of descending into the type of theoretical mumbo jumbo that dogged the OFT supermarkets probe - is the most sensible way of going about things. For the time being, he's merely contributing to the banks' supposed inefficiency by taking up so much of their time.

None of this is to say that fostering competition is unimportant or that Britain's banks (or Britain's supermarkets) couldn't do a lot to improve customer service and cut charges. But as dull and as boring as it may sound, the best thing that the Treasury can do to give the fat and lazy parts of the UK economy a wake-up call is to get the macro-economy on track and let the market do the rest.

Stamping on flagrant competition abuses and ensuring that public policy does not distort entrepreneurial incentives obviously require government attention.

The seemingly endless reviews and consultations, the convoluted theoretical studies that this government appears so prone to are probably harmless enough in themselves, but it seems unlikely they are going to shed much light on the darkness. When it comes to encouraging business, any number of well intentioned reviews is no substitute for getting the macro-economy right, cutting red tape, and reducing corporate taxes.