Business groups have reacted strongly to the decision by the Competition Commission (CC) to lift price controls on the four main business banks.
Back in 2003, Barclays, HSBC, Lloyds TSB and the Royal Bank of Scotland Group were told to make an account that offers an interest rate of at least 2.5% below base rate, or free banking services, available to small and medium-sized businesses.
However, the CC said after four years, the price controls were no longer appropriate, and were only ever intended as ‘a temporary measure’.
CC deputy chairman, Christopher Clarke, said other banks now ‘competed more strongly’ for small business customers, therefore improving their market position.
“[Small businesses] have raised their expectations of what banks should provide and are more likely to consider switching if they do not get what they want,” he added.
“They are therefore better placed to constrain the actions of the four banks which were subject to the price controls.”
However, the Federation of Small Businesses (FSB) said the four main banks had not fulfilled their end of the bargain, as their research showed 70% of small firms had not been made aware of the free banking and low interest options.
“We are utterly bewildered by the Competition Commission’s provisional decision in this case,” said Mike Cherry, FSB financial affairs chairman
“Despite their promises to the contrary, there has been a worrying lack of transparency from the banks about the services they offer to small businesses.”
The Office of Fair Trading (OFT), which recommended the lifting of the price controls, said the move was an important step in furthering competition in the business banking sector.
However, John Fingleton, OFT chief executive said: “The OFT will continue actively to monitor the market in future, and ensure the banks comply with their undertakings on switching and price transparency. If we find that competition is not working well for [small firms], we will consider further action.”
