Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 54 - 59)




  54. Welcome to this evidence session. Could I ask you to introduce yourselves for the sake of the Hansard writer, please.   (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 current accounts.

  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.

Mr Fallon

  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 arising.

  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.

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