Our shamed banks need many things, but not another flawed inquiry
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Version 0 of 1. There are lots of things wrong with Britain's banks – but is a new official inquiry the answer? In September the Competition and Markets Authority will launch an 18-month investigation into an industry reviled by the public since the onset of the financial crisis. Yet it is lacking in scope, and its range of remedies (there is talk of the end of free current accounts and free cash machines) raises the real risk of a perverse outcome for consumers. It's easy to reel off the failures of Britain's banks; the hugely costly taxpayer-funded bailouts, bloated bonuses, rigged Libor trading, PPI mis-selling – plus despair that, despite catastrophic mismanagement that provoked a global crisis, no one in the banking elite has ended up behind bars. Yet these issues will be barely touched upon by the CMA investigation. Its focus will be on current accounts, including small business (SME) accounts. The CMA said "significant competition concerns remain which mean that customers may not be getting consistently good service and value from their banks". In particular, the CMA is hung up on the fact that there is very little shopping around by customers, with the "big four" banks clinging on to 77% of the market. Curiously, the announcement of the investigation came just days after official figures revealed that "seven-day switching", launched last September with a multimillion-pound advertising campaign (and £750m of spending on new systems) has met with widespread indifference. There were 592,695 current-account switches in the first half of 2014, which was more than the 511,139 switches a year earlier, but not by much. Arguably, this supports the CMA's case for an investigation, suggesting that barriers to shopping around remain in place – such as the near impossibility of comparing overdraft costs given the baffling array of tariffs and charges. But an alternative reading is that customers (say it quietly) may, on the whole, be happy with the service from their banks. A recent survey by data analysts Consumer Intelligence found almost two-thirds of people don't want to switch because they are happy with their existing account. The rest think there is little point, because current accounts are all too similar, or they worry that a switch may cause complications. Others admit that they simply can't be bothered. Are there barriers to new entrants? The arrival of Metro Bank, Virgin Money, M&S Bank, Tesco Bank, Aldermore and Handelsbanken – as well as the growth of both Santander and Nationwide – suggest not. The big four could be broken up, and indeed TSB has already been carved out of Lloyds, after a disastrous first attempt to merge it into Co-operative Bank. Maybe it will now provide a vital challenge to the existing order. But it has cost more than £1bn to create at a time when ensuring banks have sufficient capital must be a greater priority than setting up new challengers. Theorists argue that "free" accounts are a smokescreen that inhibit proper price comparison, and if banks began charging for current accounts then maybe it would open the floodgates to switching. But the CMA will not be thanked if the logic of its intervention means the price of personal banking goes up rather than down. It will win wider support if it tackles more obvious abuses in the personal banking sector. Loyal customers are treated worse than new customers. The incentives to mis-sell add-on services, which resulted in the £20bn PPI fiasco, are still largely in place. Complaints about "packaged" accounts are rising. Account number portability is still not possible between banks. There is little confidence that the meltdown in NatWest's IT systems in 2012 won't be repeated elsewhere. But perhaps the biggest challenge for the CMA is that its investigation risks fighting yesterday's battles. The next decade will see a revolution in banking, as the shift to mobiles, peer-to-peer lending and contactless payments gathers pace. The big four are such a part of our national landscape it's easy to imagine they will be there forever. We thought that once about the Man from the Pru. Maybe the next generation's big four will be the likes of Google, Paypal, Amazon and Bitcoin. A cheap way to give shareholders more profit Shortly after entering No 11 as chancellor for the first time, in 2010, George Osborne went to the CBI annual dinner and told Britain's foremost business figures that he wanted to create the most competitive corporate tax regime in the world. Four years on from that speech, his strategy is bearing fruit – in a less than palatable way. AbbVie's takeover of Shire is a marriage that exploits all Osborne has to offer and gives nothing back. AbbVie is a Chicago-based pharmaceuticals firm that, like so many US corporations, was looking for a takeover target in a low-tax country to allow it to escape the heavy hand of the IRS. The US charges corporation tax at up to 40%. The UK's headline rate is 21%, heading for 20% in April. Once the deal is done, the firm will be run out of Chicago, with London its domicile for tax purposes. It will hire some London lawyers, accountants and other professionals, but little will alter on the corporate wallchart. Shire does very little research and development in the UK, and AbbVie is unlikely to change that. Most of AbbVie and Shire's business is done in the US. Britain is just a cheap way to channel profits to shareholders with the minimum interference. Osborne won praise from those business leaders for his bold move to simplify company taxes, cutting the headline rate and limiting complex reliefs. However, his efforts will be undermined if the companies cashing in refuse to bring jobs and investment. He says the project is only just under way, and soon firms will be flocking to the UK for more than just tax reasons. However, the Pfizer debacle shows he could be made to look a fool. The US giant bid for AstraZeneca for the same tax benefits, only to walk away after a political fight beckoned. If others are waiting in the wings there could, unless MPs are ready for a battle over tax, be more US firms based in the UK, cutting their tax payments, and leaving the chancellor with some explaining to do. High pay at Nationwide? The feeling's mutual The pay deals for Co-operative Group bosses helped focus minds on how the mutual sector rewards its top bosses. But the Co-op is not the only example: take Graham Beale, boss of Nationwide. The building society cannot argue that it needs to pay Beale big bucks to lure him from the private sector: he is a Nationwide veteran. Yet last year he received £2.6m – an £825,000 salary topped up with £350,000 of pension payments, £134,000 of benefits and bonuses of £1.3m. To put that into context, no one at Royal Bank of Scotland earned that much last year. According to its latest annual report, the bank's highest paid manager received £2.3m. Nationwide is held to account by its members, who had a chance to vote on its pay policies at its annual meeting last week. Just 7% voted against the remuneration report. Shame. |