Memorandum submitted by UNIFI
UNIFI is a TUC-affiliated trade union representing
some 160,000 workers across the finance sector. This submission
responds to the Treasury Select Committee's request for evidence
into its inquiry into banking. A summary of the key points made
is presented below:
UNIFI acknowledges the role of effective
competition, but wishes to ensure that enterprise is combined
with fairness and transparency.
We are concerned that banks may use the
remedies proposed in the recent Competition Commission Report
as the rationale to further cut costs, staff and branches. In
the last five years thousands of jobs have been lost in banking
and the branch network has contracted nearly 20 per cent.
The banks' response to the proposed remedies
needs to be monitored to ensure that it does not lead to the detriment
of customer service, access to financial services or employment
There needs to be a broader and more
sensitive test for the approval of mergers. The recently published
Enterprise Bill causes some problems in this regard in that merger
policy will be governed solely by competition concerns.
There has been a growth in the range
of distribution channels and these present exciting opportunities.
However, more consideration needs to be given to the effects of
Initiatives such as the sharing of bank
branches and Universal Banking Services are welcome. However,
they will need to be evaluated carefully.
If the finance industry is not capable
of providing access to affordable and appropriate products and
services in the current regulatory environment, the Government
should address how regulatory policy can best encourage it to
Community Reinvestment Act type legislation
such as that used in the USA should be considered as a policy
option. Consideration should also be given to the potential for
a "Universal Service Obligation" to be placed on financial
institutions for the provision of basic financial services.
There needs to be greater recognition
of the impact that employment practices can have on productivity
and profit. The way employees are treated at work has clear consequences
for the quality of service delivered to customers.
There needs to be a forum to allow examination
of the inter-relationship between finance sector regulation and
employment practices and the impact for staff and customer service.
1. UNIFI is a TUC-affiliated trade union
representing some 160,000 workers across the finance sector. The
union represents staff in all grades and all occupations, not
only in the major English and Scottish banks, but also in investment
banks, the Bank of England, insurance companies, building societies,
finance houses and business services companies. UNIFI can be contacted
via John Earls, Joint Head of Research, UNIFI, Sheffield House,
1b Amity Grove, Raynes Park, London SW20 0LG or [email protected]
2. We welcome the opportunity to give evidence
to the Committee on banking services following the Competition
Commission's recent report concerning SMEs and the Treasury Committee's
earlier report on Banking and the Consumer. We particularly
welcome the opportunity to inform the proceedings from the perspective
of employees in the industry.
3. UNIFI acknowledges the role of effective competition
in promoting economic growth and improving customer service. However,
we also have concerns that too narrow a focus detracts from proper
consideration of other important issues. We wish to ensure that
enterprise is combined with fairness and transparency.
4. The recent Competition Commission Report into
The Supply of Banking Services to Small and Medium-sized Enterprises
finds that "the four largest clearing groupsBarclays,
HSBC, Lloyds TSB and RBSGare together charging excessive
prices (including interest forgone on non-interest-bearing current
accounts) and therefore making excessive profits, in England and
Wales, of about £725 million a year over the last three years
with adverse effects on SMEs or their customers".
Remedies are proposed to address this issue and these have been
accepted by the Chancellor of the Exchequer and Secretary of State
for Trade and Industry.
5. UNIFI is concerned that the banks named in
the report may use the proposed remedies, including the introduction
of current account interest and free banking, as the rationale
to cut costs, staff and branches, and to increase charges elsewhere
6. It is important, we feel, that the situation
is monitored so that while the issue of excess profits is addressed,
this does not lead to the detriment of customer service, access
to financial services or employment relations.
7. We note that the Forum of Private Business
in its Survey 2000 Report on Private Businesses and Their Banks
reports a fall in the performance of the banks as perceived by
their smaller business customers.
The Forum finds that "Bank cost reductions combined with
access to information and communication technology (ICT) have
prompted structural changes that appear to have caused the reduction
in business satisfaction'' (Executive Summary). In addition, the
report finds that ``bank restructuring and greater centralisation
have made many customers feel disengaged and more remote from
the decision making process".
8. As the major specialist finance sector trade
union, we have direct experience of the detrimental effect that
rationalisation and restructuring, when poorly managed, can have
on employee performance and customer service. We explore this
further in paragraphs 40-44 of this submission.
9. We are also concerned that the relentless
concentration on "shareholder value" in the City leads
to short-termism in business planning and activity. One manifestation
of this can be found in takeover and merger activity.
10. We note that the Competition Commission found
there to be a considerable degree of market concentration, and
in particular that 90 per cent of small businesses used the "big
four" banks for their banking and financial services. There
is also significant density in terms of current accounts, where
again the big four hold in the region of 75 per cent of business.
| ||FRS Data
||CC Data: All PCAs
||CC Data: Full PCAs
|"Big Four" banks||72.1%
|All traditional banks||77.9%
(Source: Competition Commission's report on the proposed
merger between Lloyds TSB and Abbey National, 2001. NB All PCAs
refer to accounts offering ATM payment in and out, cheque book,
debit card, ATM access. FRS refers to research carried out by
FRS, and CC to the Competition Commission's own research).
11. We have concerns about any future concentration of the
market, especially through mergers and take-overs. We also note
the findings of the Cruickshank Review of Banking Services which
concluded that "further action is necessary in particular
to prevent anti-competitive merger" and that "relatively
few mergers among the top ten banks in the UK could presently
be argued to be in the public interest".
UNIFI concurs with this view and we supported the referral of
the proposed merger between Lloyds-TSB and Abbey National.
12. UNIFI contends that there is a social dimension to mergers
which needs to be acknowledged. Mergers have an impact on employees,
customers, communities and regions, and therefore it is appropriate
that the impact a merger has upon these be taken into consideration
when a merger is proposed. UNIFI would suggest that a companion
test to the competition test be developed which considers the
social impact of a merger and what the impact of the merger will
be on the efficiency and development of a company.
13. UNIFI would like the rationale for a merger to be scrutinised
for the economic and social benefits the merger will produce as
there is a growing body of evidence that suggests that mergers
do not deliver the benefits claimed of them. Mark Sirower in his
book The Synergy Trap studied 168 mergers between 1979
and 1990 and concluded that 67 per cent of mergers actually destroyed
shareholder value. More
recently, KPMG have noted that only 17 per cent of all international
mergers added value to the combined company, while as many as
53 per cent actually destroyed shareholder value.
14. Professor Hans Schenk at Tilburg University has suggested
that between 70 per cent and 85 per cent of banking mergers in
Europe fail. He finds that there is generally no change in profitability
(if anything, there is a decrease), returns on equity and investment
decrease, productivity trails, and especially large banks do not
improve efficiency even with cost-cutting.
15. We accept that competition is a key factor in the analysis
of economic development, and in particular of mergers regulation.
However, we suggest that competition becomes a more meaningful
measure if it is placed alongside other factors which address
the concerns of a wider range of stakeholders.
16. There needs to be a broader and more sensitive test for
the approval of mergers. We note that the Competition Commission
Report finds that Royal Bank of Scotland Group, formed by the
merger of Royal Bank of Scotland and NatWest, "itself has
a scale monopoly situation in that it supplies over 25 per cent
of the reference services" and that the Commission "found
these practices to be against the public interest".
However, this was a merger approved on competition grounds just
three years ago.
17. We would like to express concern here about the almost
exclusive focus on competition in respect of the regulation of
mergers in the recently published Enterprise Bill. The policy
on mergers will be governed solely by the effect of a particular
transaction on competition, rather than, as at present, the effect
on "the public interest" (which whilst emphasising effective
competition, can also include effects on employment, regional
policy, etc). Ministers will have reserve powers to intervene
only on those merger cases affecting national security/defence,
plus other "exceptional" cases, subject to parliamentary
18. Our concern is that no consideration will be given
to the "social" implications of mergers. We would argue
that the consequences of mergers do sometimes need to be considered
beyond the "economic" and that the proposed reforms
do not allow a mechanism for that consideration.
19. Consideration could be given as to whether the new
"super-complainant" procedure (that will enable certain
consumer organisations to have the right to compel initial investigation
by the OFT into specific markets) should be extended to other
third parties such as trade unions.
20. There have been thousands of job losses in the banking
sector over recent years. The British Bankers Association report
a reduction in employment in retail banks of 11,300 in the year
2000 (although this is said to have been partly offset by increases
in overseas banks and smaller British banks).
21. Of the "big four" banks only HSBC increased
UK employment in 2000. Royal Bank of Scotland Group's Report and
Accounts for 2000 report that the number of staff had been reduced
by 13,000 (18,000 job losses are planned by 2003). Lloyds-TSB
in its Annual Report and Accounts 2000 states "since the
merger in 1995 there has been an underlying reduction of 20,076
NUMBER OF STAFF
|Alliance & Leicester||8,600
|Bank of Scotland||13,300
|Royal Bank of Scotland||19,200
|All BBA Retail Banks||354,900
|Source: British Bankers' Association Abstract of Banking Statistics 2001, Table 5.01 for headcount staff employed at end of December 2000, including part-time staff.
22. The rate of bank branch closures has eased over recent
years, but the bank and building society branch network has contracted
by over 25 per cent in the last decade. Between 1995 and 2000
the UK bank branch network has lost over 2,500 branches, a fall
of 19 per cent.
UK BRANCH NETWORKS
|Abbey National (includes National and Provincial after 1996)
|Alliance and Leicester||397
|Bank of Scotland||411
|Halifax (includes Birmingham and Midshires after 1999)
|Royal Bank of Scotland||687
|Total (BBA Major British Banking Groups)
|Source: British Bankers' Association Abstract of Banking Statistics 2001, page 53, Table 5.02.
23. It is worth recalling that in his Annual Report 1995-1996
the Banking Ombudsman stated that some of the worst cases of banking
maladministration stemmed from attempts to achieve greater efficiency.
He asked whether "some blame (can) be attributed to the closure
of smaller branches . . . to staff reductions and to other moves
This risk has not disappeared.
24. The Competition Commission Report identifies the branch
network as vital to small business as an entry point for finance
and for the running of their businesses. The report also notes
that small businesses now play a significant part in the economy
as a whole, and we would suggest that to see further branch closure
programmes could have a harmful impact upon the development of
25. We would further add that local branches are vital to
communities and to customers wishing to have access to financial
services. We note that the Office of Fair Trading in its report
into Vulnerable Consumers and Financial Services published in
1999 stated that "To the extent that banks present social
benefits, there could be an argument for some public policy response
to bank closures."
26. The Treasury Committee's Report on Banking and
the Consumer raises the issue of financial inclusion. UNIFI
has been interested in this issue for some time, believing that
access to basic financial services has increasingly become an
essential part of social well-being in a modern economy.
27. We acknowledge that financial exclusion is not just about
branch closures and that there has been a fantastic growth in
the range of distribution channels, not least those brought about
by technological developments. But more consideration needs to
be given to the effects that the closure of local branches can
have on customers and local communities. A report into Social
Exclusion in Wales published by the House of Commons Welsh
Affairs Committee in November 2000 (and to which UNIFI gave evidence)
recommended that the Government require banks to conduct, and
publish, social impact assessments before closing branches.
28. The National Consumer Council has also expressed concern
about the way in which bank branches are closed arguing that "Full
consultation, rather than simple notification, should take place,
to give consumers the opportunity to highlight significant difficulties".
They go on to argue that the "requirement to consult should
be extended beyond full closures to include substantial reductions
in service, such as opening for fewer days.
29. We believe that what customers want is choice in the form
of access to a variety of channels depending on their personal
circumstances and the type of transaction they wish to carry out.
30. The Government has accepted the Competition Commission's
recommendation that banks examine the scope for the sharing of
31. We also note that at the start of this year the British
Bankers Association launched a "Shared Banking Services"
pilot scheme involving the "big four" banks. Under the
scheme personal customers and selected small business customers
of the participating banks are able to pay in, make withdrawals
and exchange notes and coin through a competitor bank's branch
in 10 locations where there is only a single bank branch and no
others within approximately five miles.
32. The "shared branch" proposal is a welcome initiative.
However, it will need to be evaluated carefully in respect of
its promotion and implementation. Issues of particular concern
include the extent of initial consultation, the training and resources
available to deal with extra workload and systems, and the potential
for the shared branch arrangement to be used as a licence to close
33. As with the "shared branch" project, the Universal
Banking proposal is also a potentially valuable initiative. Self
evidently, access to financial services through a post office
is better than no access at all. But again, proper evaluation
is required in order to ascertain its effectiveness. Many of our
concerns in respect of training and resources and the potential
to precipitate further closures also apply here. In addition:
The post office network is itself under threat;
Will the accumulation of customers from the participating
banks result in increased congestion, queuing and lack of privacy?
What are the security implications of so much community
cash handling being focused in one vulnerable shop?
34. We think there is also an issue here about what role other
banks will play in these projects and the wider financial exclusion
debate. Whilst we can be critical of the established banks, it
is only fair to also ask about the "new entrants", those
without a branch structure to maintain, who we know "cherry
pick" the more affluent customers. What role will they play
in addressing what is an industry problem?
35. Financial services providers need to be encouraged
to take greater responsibility for providing services to the whole
community. There needs to be a review of the mechanisms by which
this may be achieved.
36. There may be scope in the industry Codes of Practice and
recene reviews in the Banking Code have made some advances. However,
we would share some of the concerns outlined by the National Consumer
Council in its response to the independent review of the banking
code. In particular,
the fact that coverage is not universal, whether there should
be a statutory underpinning for the Code, and more effective monitoring
and compliance processes.
37. However, if the industry is not capable of providing access
to affordable and appropriate products in the current regulatory
environment, the Government should address how regulatory policy
can best encourage it to do so.
38. In the United States of America, the 1977 Community Reinvestment
Act (CRA) encourages financial institutions to ``fulfil their
continuing and affirmative obligation to meet the credit needs
of their communities''. The Act requires the regular evaluation
of the community lending performance of financial institutions
and for this performance to be taken into account when considering
merger, acquisition or branch relocation proposals.
39. We note that in a Report to the Chancellor in October
2000 the Social Investment Task Force also proposed greater disclosure
of individual bank lending activities in under-invested communities.
If voluntary disclosure did not come about quickly, it recommended
that the Government introduce CRA type legislation. In addition,
it said that such legislation should not be limited to banks but
should address other financial institutions providing services
to individuals and small businesses.
40. Consideration should also be given to the potential for
a "Universal Service Obligation" to be placed on financial
institutions for the provision of basic financial services.
41. UNIFI supports the drive towards a competitive and efficient
industry. Whilst initiatives in technology, processes and products
clearly have an important role to play, all too often not enough
consideration is given to the huge impact that people-based practices
can have on productivity and profit.
42. The way employees are treated at work has clear consequences
for the quality of service they are able to deliver to customers.
43. Results from the UNIFI Member's Survey conducted by Jeremy
Waddington at UMIST highlight some important areas in this regard.
81 per cent of members said that their job was stressful. 50 per
cent of respondents work at least one hour's unpaid overtime per
week. 20 per cent do five hours or more.
44. Interestingly, where employers were positively involved
with the union members reported less stress, felt that their skills
were better utilised, that there was opportunity for the future
development of new skills, and that there were opportunities for
advancement in their company.
45. Productive organisations are those that engage properly
with their staff. It is also our experience that work re-organisation
is most likely to succeed when it allows for the participation
of affected employees and their representatives.
46. We would also like to take this opportunity to raise the
issue of finance industry regulation and employment practices.
We understand that employment relations is not within the remit
of the Financial Services Authority. However, we have experienced
occasions when the strict demarcation between the two has created
a vacuum whereby it is very difficult to pursue issues or identify
accountability. Employers justify practices on the basis that
the regulator requires them and the regulator does not get involved
in employment relations issues.
47. Among the regulatory issues that impact on the work environment
of the industry's employees and have implications for consumer
protection are references, disciplinary policy and remuneration
48. The Financial Services Authority already has "practitioner"
and "consumer" panels. There needs to be a forum to
allow examination of the inter-relationship between regulation
and employment practices and the impact for staff and customer
49. UNIFI acknowledges the role of effective competition,
but wishes to ensure that enterprise is combined with fairness.
We want a banking sector that is successful and responsible in
the way that it deals with all its key stakeholders, including
its employees. We want to work with all appropriate partners towards
(Report summary, para. 1.8). Back
Forum of Private Business Survey 2000 Report on Private Businesses
and Their Banks: Executive Summary. Back
Chapter 2, Section 2.157, and Executive Summary xiii). Back
Mark L. Sirower The Synergy Trap-How Companies Lose The Acquisition
Game (Free Press, 1997). Back
KPMG Unlocking Shareholder Value, the Keys to Success, reported
on BBC News Business website, November 1999. Back
On the Performance of Banking Mergers. Some Propositions and
Policy Implications, The impact of mergers and acquisitions
in Finance on workers, consumers and shareholders, Background
Report, Brussels/Geneva: UNI-Europa, 2000, pp. 24-43. (English
abstract)(French abstract) UNI2000FrenchAbstr.html. Back
Report Summary, para. 1.9 Back
British Bankers Association Banking Business: An Abstract
of Banking Statistics, Volume 18 2001 page 50. Back
Banking Ombudsman Scheme Annual Report 1995-96, page 15. Back
Office of Fair Trading Report into Vulnerable Consumers and
Financial Services, 1999, para. 314, page 23. Back
Welsh Affairs Committee Social Exclusion in Wales, 2000, para.
79, page xxii. Back
National Consumer Council Response to the Independent Review
of the Banking Code, February 2002, page 4. Back
National Consumer Council Response to Independent Review of
Banking Code, 2002. Back
Enterprising Communities: Wealth Beyond Welfare, A Report
to the Chancellor of the Exchequer from the Social Investment
Task Force, October 2000. Back
UNIFI Members Survey 2001 Report. Back