Examination of Witnesses (Questions 54
WEDNESDAY 1 MAY 2002
54. Welcome to this evidence session. Could
I ask you to introduce yourselves for the sake of the Hansard
(Mr Alambritis) Head of Parliamentary Affairs, Federation
of Small Businesses.
(Mr Walker) Policy Chairman, Federation
of Small Businesses, and previously, in a past life, I worked
for one of the high street banks between 1971-1987. Since then
I have been self employed.
55. An introductory question: small businesses
are being ripped off by the big banks. The Competition Commission
indicated £725 million and there is nothing in the horizon
to change that; is that correct?
(Mr Alambritis) No, I do not think that
is correct, I think there has been overcharging, I would not call
it ripping off. There has been overcharging over the last two
years in particular to the tune of £725 million. We hope
that in our discussions with the banks there are proposals both
from the Competition Commission and those accepted by the Chancellor
of the Exchequer to ensure that the practice of overcharging can
desist and to give a fair deal to small businesses because the
relationship between banks and small businesses is key, especially
to the UK economy. 86 per cent of all small businesses are in
with the four major high street clearers, and it is very important
that they get on together. Sir Gordon Borrie, now Lord Borrie,
when he was Director General of the OFT and when he was asked
by Norman Lamont, now Lord Lamont, to look into the banks, said
that the banks had opaque and hidden charges, and were not meeting
the reasonable expectations of their customers. Back in the early
1990s with severe recession, that is when there were huge problems
between banks and small businesses. Things have improved immensely,
but there is still a long way to go. That is because small businesses
now have more on deposit with their banks than they are actually
borrowing, therefore, that is where the overcharging comes in
and that is where there is this clamour for interest on their
56. £725 million is not inconsiderable.
A lot of people would think that is a really serious problem?
(Mr Alambritis) It is a serious problem. The key question
is how to rebalance that. The FSB is supporting the call for interest
on current accounts, that will go some way, and/or in supporting
the call for free banking with regard to small businesses. That
should, over the next year or two, retrench and recover some of
those monies. There have been some calls for repaying back, and
that is very difficult, to find the small businesses that were
overcharged to repay back through any system other than these
institutions that promise to look at your bank statements and
try to claw back overcharging and then they get a cut of the cake.
We think the best way forward is to speedily adopt the recommendations
of the Competition Commission.
57. The Competition Commission stated that the
quality of service and the terms in which that service is provided
are key factors in the success of the small business sector. Do
you agree with that?
(Mr Alambritis) Yes, certainly. One of the points
that we are making with regard to small businesses and why they
choose certain banks against others is the quality of the service
and the quality of the bank manager in particular. One of the
concerns currently coming through is the propensity of the major
clearers to put everything through these call centres, and that
is creating a lot of angst amongst small businesses who want a
personal relationship with their bank, who want to know that their
bank manager is at the end of the line and not at the end of a
call centre line where they have to sit there and wait for hours
on end before they can get through, so quality is very important.
(Mr Walker) Can I just add to that, Chairman. Quite
a lot of our members get concerned, not only with the call centre
side as my colleague had identified, when the lending function
is no longer in the high street, and has been transferred to an
area office, which might be 20, 30 miles away from where that
business person is, so there is concern on that front as well
as with call centres.
58. You note in your submission that small business
customers who do swap about on a regular basis have a stigma attached
to them. What do you mean by that? Who attaches the stigma?
(Mr Walker) To some extent, going from my own remembrance
of the ways banks look at things, if a customer keeps changing
banks, they do not build up a track record from which the bank
can make some sort of view if they get a request for a status
enquiry as to whether the customer might be suitable for his rental
or something. The bank will say, "We have not known this
customer for very long, we are unable to speak for your purpose".
So often it is seen as a problem if business people keep changing
banks particularly when there are credit reference situations
59. And you are pretty confident in your submission
that it is the portable credit history that will solve this problem?
(Mr Walker) Yes, indeed. We feel that by the track
record moving with the customer from one bank to another, it would
certainly overcome the problem I have identified.
(Mr Alambritis) But one of the issues that we see
is the Victorianesque and archaic language in which banks have
their own system of providing credit references and their own
language about their customers, and the nomenclature of some 70
statement straplines, what we support is a model template credit
reference that is recognised by all the banks and therefore that
should speedily allow small businesses to switch more easily from
one to another. We get the situation where a small business will
be discussing going to a new bank, the reference then arrives
from the existing bank, which is not as rosy or in the kind of
language that the potential bank is expecting, and then the small
business is left hanging. The aim within the Banking Code to switch
within five weeks is far too slow. We welcome the Competition
Commission and the Chancellor's acceptance of speeding up switchability
within five working days where there are no complex borrowing
arrangements. There is a stigma. There is a loyalty bonus for
staying with a bank. The vast majority of small businesses tend
to stick with the bank they started off with, and that may be
because they are happy, but what we need to do is to give them
the courage and the confidence that they can switch without a
stigma being applied.