Outlook: Rip off Britain

SURPRISE. ACCORDING to the latest issue of Which? magazine, Britain's top banks are offering uncompetitive rates on everything from personal loans to insurance and credit cards. Typically, all these products are more expensive when bought from one of the big banks than elsewhere.

It is famously more common to get divorced than move bank; the Consumers' Association reckons the big high street names are taking advantage of this apparently misplaced loyalty to fleece their customers with poor value products to the tune of hundreds, and in some cases, thousands of pounds a year. This is just another example of "Rip-off Britain", Which? concludes.

New Labour has long believed that there is something structurally wrong with British business that over pricing like this should be allowed to persist over such large swathes of the economy. Along with the Press, it has embraced radical consumerism with evident abandon. But has it fully thought through the consequences of this approach?

Its appeal is obvious. In a world where it is no longer possible to be anti-business as such, consumerism allows left leaning politicians to continue to think that most business, and particularly big business, is theft unless properly controlled and regulated. This is very handy for those still struggling to make the transition to a society where business and the free market are meant to be admired, not denigrated. Business people are all well and good, but they are also on the make and will rip you off given the slightest chance, is the general message.

Fine. Unfortunately for the Government, radical consumerism cuts both ways and in a number of instances it contradicts what ministers are trying to do on other fronts. Take banking. The Government is concerned about "social exclusion" and wants the banks to subsidise elements of society which are excluded from the banking system, or as in the countryside, in danger of becoming so. At a time when the banks are being told by Which?, the Consumers' Association, the newspapers and government ministers alike to stop ripping off their customers and start competing with new low-cost operators, this seems about as likely as a month of Sundays.

In fact, the pressure of low cost competition is rather in the opposite direction. Some banks, for instance, have started charging rival banking customers for using their cash point machines, and their own customers for disloyalty in using somebody else's. Rather than being another instance of "rip-off Britain", as widely portrayed, this is in fact an attempt by banks to make the cost of money transfer explicit. This, in turn, strips out the implicit charge that came by way of cross subsidy from other products, which in turn allows those products to become more competitive with those offered by low-cost newcomers.

So the consequences of radical consumerism are often neither foreseen nor benign. Moreover, even the brave new world of price transparency and product choice promised by the Internet isn't going to stop business from targeting the better off and ignoring the poor. Indeed, the growth of e-commerce might make the poor relatively even worse off, since its benefits are open only to those with access to both knowledge and technology.

Don Cruickshank, the man charged by the Government with investigating whether the big banks are failing the wider economy, has rightly identified lack of competition in financial services as the main bug bear. He also rightly identifies Government imposed supervision and regulation as the biggest barrier to entry, a finding Gordon Brown, the Chancellor, cannot have had in mind when he commissioned Mr Cruickshank to undertake the probe. Consumerism as a policy approach requires rather more than popularist rhetoric about "Rip-off Britain". To work properly it also requires a radical free market agenda, and the stomach to live with its consequences. Nor can a free market economy be regulated into existence. Rather, it has to be deregulated into being.

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