Uncompetitive, dishonest: MPs' verdict on UK banks

More than a decade after the Cruickshank Report slammed Britain's banks as uncompetitive, little has changed, say MPs

Sean Farrell
Saturday 02 April 2011 00:00
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Britain's biggest banks get away with poor service, confusing products and dishonest claims about free banking because they have a stranglehold on the market, a report by MPs says.

The House of Commons Treasury Committee poured scorn on banks' claims that they offer free banking and that the benefits of their size means lower prices.

All customers pay for their banking and the most vulnerable pay the most, while benefits of being a big bank are not passed to customers, the cross-party committee said in a unanimous report on the retail banking market.

Banks that are "too big to fail" enjoy unfair advantages over smaller challengers in a market that is less competitive after the financial crisis, the report said. The MPs rejected arguments put to them by some of Britain's most powerful bankers, including Bob Diamond, the chief executive of Barclays, and Eric Daniels, who headed Lloyds until earlier this year. "It has many of the characteristics of an oligopolistic market. They [the bank bosses] certainly understand it very well," said Andrew Tyrie, chairman of the committee. "It is natural enough that banks should fight their corner on behalf of their shareholders but it is even more important that those trying to protect the consumer and get the best deal for the public challenge them and that is what we have done."

On "free" current accounts, the MPs argued customers in credit were really paying because they were missing out on higher interest elsewhere while more vulnerable customers paid charges that subsidise those in credit.

The committee said that, over a decade after the Cruickshank report called for easier account switching and product comparison the market had hardly changed. "The bottom line is that you and I don't know and for all practical purposes it is impossible to find out how much we are being charged by our bank," Mr Tyrie said.

"Until consumers know the price tag for basic services and until the fear of switching is reduced the preconditions for competition will not exist."

The big banks told the committee's inquiry that their size created economies of scale that were passed back to consumers in lower prices. But the MPs said the benefits went mainly to shareholders and that the impact on competition outweighed any virtues of their size for customers.

The MPs called on the Government to make competition part of the remit for the new Financial Conduct Authority, which is set to replace part of the Financial Services Authority, and to prioritise competition over short-term returns when selling Northern Rock and other nationalised bank assets.

The big banks get a subsidy from Government guarantees that reduce their costs and crowd out competition, the MPs said.

They called on the Independent Banking Commission to deal with the issue when it produces its interim report on 11 April.

The British Bankers' Association said setting up a bank required lots of capital which protects depositors but limits new entrants.

It said it was working with competition authorities on switching and clearer pricing.

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