Brown accuses high street banks of ripping off their customers

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Banks attack Brown's clampdown on charges as 'fundamentally flawed'

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Gordon Brown announced a crackdown yesterday on excessive profiteering by the big high street banks. In a damning Commons statement, the Chancellor accused the four biggest lenders of overcharging business customers to the tune of £725m a year.

He ordered Barclays, Lloyds TSB, HSBC and Royal Bank of Scotland to cut their charges to small and medium-sized companies or to begin paying interest on business accounts.

His action followed the Competition Commission's ruling that the banks were in effect operating a "complex monopoly". It highlighted a series of practices deemed to be against the public interest because they restricted or distorted competition. The commission found that most charged "excessive prices for banking services, to an extent that would not be expected in a fully competitive situation".

Royal Bank of Scotland was singled out for particular criticism because NatWest, the English bank it bought in 2000, had such a large share of the market.

The country's eight main lenders were told by Mr Brown to rethink their approach to their business accounts. The Chancellor said the banks had three years to reform their entire services to small business customers.

He told MPs: "We recognise that to be robust and play their key role in the economy it is necessary and desirable for banks, at points in the economic cycle, to make higher than average profits. But while we are pro-profit we are also pro-competition and cannot be on the side of any monopoly or any other behaviour that unfairly restricts competition in markets."

Mr Brown's plans – jointly drawn up with Patricia Hewitt, the Secretary of State for Trade and Industry – had been prepared in secret as they were market sensitive. They reflect growing concern in the Treasury that the big banks are acting as a brake on economic growth.

Mr Brown has signalled that his Budget on 17 April will contain measures designed to provide incentives to Britain's 3.5 million small businesses.

Michael Howard, the shadow Chancellor, gave a guarded welcome to the moves but ridiculed Mr Brown for posing as the champion of entrepreneurs. "You and your Government have done enormous damage to the small business sector of this country by the piles of regulations which you have imposed," he said.

The former Tory cabinet minister John Redwood warned that the moves could be used by the banks as a justification for "another very big round of branch closures".

The Federation of Small Businesses welcomed the plans, while the Office of Fair Trading said: "The sooner the competition makes the regulatory remedy unnecessary, the better."

But a spokeswoman for Lloyds TSB said: "We believe we have always operated in a competitive environment and we cannot see how price controls will enhance competition."