BUSINESS BANK RATE LIMITS TO END

The Competition Commission has said it is to lift price controls on services the UK's four largest banks provide to small and medium-sized businesses.
The move will allow the banks to lower the level of interest on deposit accounts below the level set in 2003.

Previously, the banks had to offer the firms an account offering a rate of at least 2.5% below the base rate.

Barclays, HSBC, Lloyds TSB and Royal Bank of Scotland control 85% of small business accounts.

Four years ago, these four banks accounted for more than 90% of all accounts for businesses with a turnover of up to £25m.

Price controls have clearly done little to encourage small businesses to switch banks

Mark Curran, Business Banking, HBOS

The Competition Commission ruled then that either they had to offer interest on credit balances or free banking services to create what it considered to be a competitive pricing environment.

The banks were also bound to publicise any changes in their charges and prevented from making the supply of SME banking services conditional on taking other services, such as loans or personal current accounts.

These measures were designed to make switching accounts easier and prices more transparent for small-to-medium enterprises (SMEs), the Competition Commission said.

In a review of the success of the initiatives, the Office of Fair Trading found that while small businesses were more likely to consider a move away from one of the bigger banks, the level of switching remained at about 4% - close to 2003 levels.

Raised expectations

The price controls could be lifted by the end of the year if responses to the Competition Commission's consultation over the next month are positive, but transparent changes to interest rates and a prohibition on bundling different products will remain in place.

"During this period, other significant banks, such as HBOS, Abbey, and Alliance & Leicester, have competed more strongly for SME customers and improved their market position," said Competition Commission deputy chairman Christopher Clarke.

"SMEs have raised their expectations of what banks should provide and are more likely to consider switching if they do not get what they want.

"They are therefore better placed to constrain the actions of the four banks which were subject to the price controls."

Alliance & Leicester and HBOS, the owner of Halifax and Bank of Scotland, both welcomed the regulator's decision to lift the price controls, but pushed for more "constructive steps" to address the problems associated with changing bank accounts to get the best deal.

"Price controls have clearly done little to encourage small businesses to switch banks and the hassle factor of switching has still to be addressed," said Mark Curran of HBOS.


SOURCE: BBC