Select Committee on Treasury Minutes of Evidence


Examination of Witnesses (Questions 400 - 419)

TUESDAY 18 JUNE 2002

MR JAMES CROSBY, MR IAN HARLEY AND MR STEVE TARGETT

  400. Mr Targett, what is your objection to this?
  (Mr Targett) We do not have any specific objection to that. My issue is that I am just concerned that price controls may be a deterrent to people entering the market.

  401. That is a bit of spin on it, is it not, to call it price controls? Why would a bank expect on these current account balances to be earning, let us say, Bank of England base rates and paying out 0.1 per cent? Why should you have that sort of free ride?
  (Mr Targett) I am not sure I would describe it as a free ride, but we do not have any objection to meeting the competition.

  402. You and Mr Crosby referred to this as price control as though it were some over-centralised regulation. Is it not just a matter that you have not been exactly generous in the past and the Competition Commission is saying raise this somewhat to be fairer to the customer?
  (Mr Targett) We basically price our services to meet the competition. Whether they are generous or not, we will meet the market. If we do not meet the market we will lose business.

  403. Is your objection really that you are being asked to pay more than you might have done otherwise if you had been left to your own devices?
  (Mr Crosby) No. In the Competition Commission requirements on business accounts, we are already, and have been for some time, paying more than they will require banks to pay. My only concern—and I want to be very clear that it is a marginal concern—is that we are the major competitor coming into this marketplace and it reduces the distinctiveness of our offer to customers. We believe we will change the marketplace in conjunction with others over a period of time. We will not do that unless we acquire new customers and attract new customers. From our point of view that means we just have to change and develop our marketing proposition. It does not change the overall thrust. That is the only concern I have. It is not in the sense that it is forcing us to do something, not even near to forcing us to do something we are not already doing.

  404. Would it not be fair to say that if the real argument were one of you maintaining distinctiveness by the rate you pay, you would not have had to wait for the Competition Commission to raise this issue? You could have raised the rates you are paying out on these various accounts of your own accord, whereas at the moment the rates are very low, 0.1, 0.2 per cent. I have a list of them here.
  (Mr Crosby) Two years ago we launched paying interest on current accounts in the personal sector, which had nothing to do with any competition inquiry. As soon as we merged with Bank of Scotland we launched the same initiative on the high streets of Scotland at Bank of Scotland. Within weeks we moved to do the same thing in business banking. We have not been driven or pushed by the Competition Commission or any authority in any direction. We have done those things because we see it as the most overt way of competing to attract new customers.

  405. This recommendation which the Competition Commission have made on current account balances is welcomed by all. That is the gist of what you are saying.
  (Mr Harley) It is certainly not unwelcome. The issue for us is that it seems to be a short-term remedy and I think it should be a short-term remedy.

  406. Mr Targett, is that true for you?
  (Mr Targett) We will meet the competition. We are not forced to do it because we are not caught up in this, but we will do it to meet the competition in that area. It is a fairly narrow focus just to look at that particular issue. We would look much wider than that in terms of trying to satisfy customers rather than just interest on current accounts.

  407. Let us move on. The Competition Commission also talked about a national scheme for sharing branches. When we had the Big Five here that was anathema to them, they could not possibly co-habit in that sort of way. Yet if I add up the number of branches between the three of you, you would have 2,430, more branches that any of the Big Five. How do you receive this proposition to look into the possibility of sharing branches and therefore spreading your presence around the United Kingdom more than you could do individually.
  (Mr Crosby) We have said that we are interested in pursuing the discussions. It is very difficult to be clear what it would mean in practice. It would require a high level of co-operation between banks who are hopefully, increasingly being much more competitive with each other. In some ways it is slightly counter-intuitive, but giving greater access to customers does improve choice and choice improves competition. The logic is there. It is a question in the midst of our discussions, in which I am not personally involved, as to whether it could be made workable.
  (Mr Targett) We are not against it. We are in a similar position: we have to understand the detail. We would be in a situation in terms of branches where over the last five years we have closed far fewer than the rest of the competition, so we are very acutely aware of making sure that we do provide a service, particularly in remote areas and that people do have basic banking. The concept is one we are not against exploring, so we would get involved in discussions as well.
  (Mr Harley) The devil is in the detail. I agree with my colleagues that it is how it would be applied. It works at a technological level with the ATM networks, so I guess it could work with over-the-counter transactions as long as the detail is worked through with sufficient clarity.

  408. Is it not up to you as to how it is applied? You could negotiate this between the three of you now as a means of competing in remote areas where otherwise you would not be able to afford to keep a branch going. Why is it a matter for further discussion? You could get together and sort this out as a competitive feature of the scene, could you not?
  (Mr Harley) We could do it on a bilateral basis as we and probably most of us have done with the Post Office. We do have bilateral agreements.

  409. Is this question being actively and positively considered or is this just something which is going to slide away into the mists of time?
  (Mr Crosby) It sounds as though we are all taking the same position and we are engaging positively in the discussions. Frankly, having read the transcript of the previous hearing you had with the Big Four, it does not seem likely that the Big Four are going to embrace the concept.

  410. Not at all, but that does not preclude you embracing it.
  (Mr Crosby) To make it really practical, it should include everybody and that is the nature of the proposition and that is an important element of the Competition Commission's logic and an important element of their proposition. I am not saying that if it fails we will not look at it outside the Competition Commission's inquiry. At the moment our focus is very clearly on that. I would say to you that I do not think discussions are very well advanced at this stage, because the discussions the Competition Commission are having with the Big Four have got bogged down in every other area, including the implementation of interest on current accounts which looks likely to be delayed. It is very early stakes in this one at this stage.

  411. Why should it not be a competitive feature, nothing to do with the Competition Commission, by which you, the smaller banks, could address competition with the bigger ones?
  (Mr Crosby) It is something we will look at, if the opportunity is there after the Competition Commission.

Chairman

  412. May I bring to your attention a letter I received on 5 June after the last banking inquiry from the Chief Executive of the Post Office. He says, "You will have noted from the evidence given by the banks to the committee . . . they are not keen on the concept of shared branches for the supply of business banking services. Post Office Ltd already has an extensive national network of branches" indeed the Clerk has indicated to me that there are 17,500 throughout the country so that dwarves anything there has been before. Mr Mills suggests to me "This would seem to offer a ready-made solution to many of the issues raised in the report and . . . help the banks to increase access to their business banking services, particularly in more remote locations". Apart from the Competition Commission, would you engage with Mr Mills on that particular issue?
  (Mr Harley) Absolutely. We already have a bilateral arrangement with the Post Office and we would look to expand that as we build the SME business. Yes, it is a perfectly reasonable solution.
  (Mr Targett) It is a good solution. We have done a similar deal in Australia.
  (Mr Crosby) We have some areas of co-operation with the Post Office and we can build on it.

Mr Beard

  413. You have already stressed the importance of the credit history transfer. What steps are being taken and how are they progressing to achieving this?
  (Mr Crosby) In our case, we have established a system of making credit histories available to customers wanting to leave us. We have that system in place and we have made all that available to the OFT.

  414. Credit histories have to be something agreed between you and the big banks as well. Are there positive moves, for instance to agree a proforma or the headings of what should be in the credit histories? Where does this proposition stand?
  (Mr Crosby) I am not present at the discussions but I believe it is at the centre of the discussions between OFT and the four clearers at the moment. Naturally, given that they have 90-odd per cent of the market, they will be issuing 90-odd per cent of the credit references, so one would therefore not necessarily expect to be at the centre of the discussion with the OFT as to how it should be done. For our part, we have made available to them the detail of our own system that we already have in place.

  415. You are not involved in the actual discussion, despite the fact that you are the recipient of many of these.
  (Mr Crosby) We are involved but honestly I am being realistic: we are not as central to this aspect as the four clearers have to be.

Mr Ruffley

  416. I declare an interest as a Member of Parliament for a rural area. Would each of the three of you very quickly give me one figure for the number of branches you have closed in the last three years in what would be designated rural or semi-rural areas? Can you just whip through that?
  (Mr Harley) I shall have to get back to you on that one, but the number of branches we have closed in total is fewer than 50. In terms of their designations, I would have to check on that.[10]

  (Mr Targett) I shall have to check and come back as well.

  417. If you could write to us. May I just explain the background to this? There is an interest in rural areas about proper provision of services and I know you have a business to run but there is legitimate public interest. What would you say the split is? Do you actually worry about closure of rural branches, or is it just another business decision?
  (Mr Harley) No, we have a very clear view that we do not like to, nor would we, close the last branch in town.

  418. That is a policy judgement which you make whenever you are deciding for commercial reasons which branch to close.
  (Mr Harley) Absolutely.
  (Mr Targett) We are in a similar situation. I will come back with the statistics. I come into this job new and I am looking at our branch network as well. We have a similar position in terms of rural branches: we would not be the last person in town to leave. We would rather look at what we call clustering to make sure that even if it is part-time hours there is some sort of representation.

  419. Could you give us some data on that and Mr Harley as well?
  (Mr Targett) Yes, we could get it for you.
  (Mr Crosby) We have roughly 1,060 branches across the UK at the moment. In the last two years we have closed no more than 50 and I do not believe we have withdrawn from any location; it is where we have two very close together generally.


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