Lee Tillcock – Editor of Business Moneyfacts

In the CertainShops newsletter

The Competition Commission (CC) has published its provisional decision to lift the temporary price controls imposed in 2003 on the UK’s four largest banks servicing small and medium-sized enterprises (SMEs). The requirement on the banks to publicise changes in charges will, however, be retained.

The decision has prompted a mixed response. Whilst welcoming the Competition Commission’s provisional decision to lift price controls on the four main business banks in England and Wales, the Office of Fair Trading (OFT) noted continuing concerns around low levels of switching in the market and a lack of price transparency for customers. John Fingleton, Chief Executive of the OFT, said: “The OFT will continue actively to monitor the market in future, and ensure the banks comply with their undertakings on switching and price transparency. If we find that competition is not working well for SMEs, we will consider further action.”

The Federation of Small Businesses (FSB) has reacted angrily to the provisional decision, Mike Cherry, FSB Financial Affairs Chairman, said: “We are utterly bewildered by the Competition Commission’s provisional decision in this case. We have provided concrete evidence that the big four banks are not complying with the undertakings they signed up to in 2002 and the Competition Commission appears to have completely ignored it.”

Abbey Business Banking welcomed the decision to remove its recommendation of price control, Ian Wilson, Managing Director of Business Banking said: “The removal of these controls will create a more transparent and competitive market.” Commenting on the announcement Steve Jennings, Director of Business Banking at Alliance & Leicester Commercial Bank said: “We welcome today’s announcement and the recognition by the Competition Commission of the gains that SMEs can enjoy from switching to a challenger bank such as Alliance & Leicester. The small business banking market has changed considerably since the Competition Commission implemented price controls, with a number of providers offering better value current accounts that can make a real difference to a business’s bottom line.” HBOS is pleased with the decision to remove price controls, as it believes a truly competitive market is more effective than one managed through artificial price controls. Mark Curran, Head of Relationship Management, Business Banking, HBOS, said, “This will enable Bank of Scotland Business Banking to push for more market share in the SME sector. We will continue to campaign for greater transparency and portability in the SME banking arena.”

SMEs have raised their expectations of what banks should provide. Similarly all banks providing SME banking services will have to continue to comply with the undertakings on the ease of switching and transparency of prices. The deadline for responses to the CC’s consultation on its provisional decision is 28 September 2007. I suspect that any move by any institution that may detrimentally affect the SME business-banking sector will be remembered for a far greater period of time.

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