Government backs call for banks to pay compensation
The Government is set to back a call from an influential committee of MPs for banks to pay compensation if they fail to switch customer accounts to a rival bank within 10 days.
This was the central recommendation of a highly critical report into the UK's banking industry published by the Treasury Select Committee in March.
The Treasury has decided to back the MPs' criticisms by endorsing all 12 of their recommendations, which also include the introduction of the Universal Bank, measures to cut interest charges and greater transparency over branch closures.
The report followed an inquiry by the cross-party group of MPs in the wake of last year's damning Cruickshank investigation into the banking sector.
The move illustrates the Treasury's growing concern that the dominance of the UK's largest banks – Lloyds TSB, Barclays, HSBC and Royal Bank of Scotland – rests largely on the difficulties involved in switching from one current account provider to another.
Its support for the select committee's proposals will be made public later this month, a week after Patricia Hewitt, the new Secretary of State for Trade and Industry, rules on the proposed Lloyds TSB-Abbey National tie-up.
However, the Treasury will not announce what concrete measures it proposes to take until after the publication of a separate investigation into the UK banking sector by DeAnne Julius, the former Monetary Policy Committee member. That report is expected later in July.
Ms Julius is understood to have rejected the select committee's suggestion that the 10-year-old voluntary Banking Code may need the support of legislation.
Ms Hewitt's predecessor at the Department of Trade and Industry, Stephen Byers, referred the Lloyds-Abbey bid to the Competition Commission on the advice of the Office of Fair Trading on the grounds that it could eliminate a significant branch-based competitor in the sector. If the deal wins clearance, it could trigger further takeover bids.
There has been mounting speculation in recent weeks that Barclays might launch a bid for Bank of Scotland if Lloyds receives the green light to buy Abbey.
The OFT will decide on 20 July whether Bank of Scotland can proceed with a nil-premium merger with Halifax, the mortgage bank.
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