HC Deb 14 March 2002 vol 381 cc1015-30 12.31 pm
The Chancellor of the Exchequer (Mr. Gordon Brown)

With permission, Mr. Speaker, in presenting the Competition Commission's report on the supply of banking services to small and medium-sized enterprises, and my response and that of my right hon. Friend the Secretary of State for Trade and Industry, our starting point and guiding objective is our belief in competition as the spur to efficiency, innovation and competitiveness.

This is underpinned by our statement last July that, just as in the last Parliament it was right to make monetary decisions independent of political influence under an independent authority—first de facto and then de jure—so too it is right to make competition decisions—de facto and then de jure—independent of political interference, with Government accepting the decisions of independent competition authorities. Having already moved de facto to such a regime in the way in which we handle merger cases, in the forthcoming enterprise Bill we will legislate to make decisions on mergers and complex monopolies independent.

There are more than 3.5 million small businesses in the United Kingdom, representing 55 per cent. of jobs, 50 per cent. of all business turnover and £1 trillion of economic activity each year. The access to finance and quality of service that they receive from banks are critically important to their productivity and prosperity and that of the British economy. So when the Cruickshank report on banking services found little prospect of effective competition emerging in the small business market, the then Secretary of State for Trade and Industry and I referred small business banking to the Competition Commission for a full investigation. Its report is published and laid before the House today.

Under the Fair Trading Act 1973, there are three necessary tests, all of which must be met before it can be concluded that a complex monopoly is operating that is harmful to the public interest. The first test is that at least a quarter of the services under consideration must be supplied by a group of persons. The Competition Commission found that the eight largest clearing banks supplied at least a quarter of banking services in the UK, with the four largest providing 86 per cent. of services, and that that degree of concentration had changed little over the past 10 years. The second test is that the group of persons must be found to conduct its affairs as in any way to prevent, restrict or distort competition". The third test is that the restriction or distortion of competition caused by the complex monopoly must be shown to operate against the public interest.

Let me set out the Competition Commission's findings. First, it finds that the banks concerned had failed to compete on price by refusing to pay interest on current accounts and only paying low rates of interest on smaller, short-term deposit accounts; and that they had been maintaining a structure of charges not related to costs.

Secondly, the Competition Commission finds that those banks had reduced choice, and the ability of small businesses to make savings on bank charges, by restricting small businesses to business rather than personal bank accounts; failing to inform small businesses about possible benefits from set-off and sweep facilities which allow for credit balances in one account to be set off against debit balances in another; and requiring small businesses wanting a deposit account or a loan also to hold a current account.

Thirdly, the Competition Commission finds that those banks had made it hard for small businesses to compare the deals available from different banks by failing to provide small businesses with a breakdown of interest charges on their current account and offering discounts only to selected customers.

Fourthly, the Competition Commission finds that those banks had made it more difficult and expensive for new entrants and alternative suppliers to attract small businesses by confining free banking to business start-ups and to small businesses that had moved from another bank, and negotiating reduced charges for small businesses that were likely to switch banks.

The Competition Commission concludes that all eight of the largest clearing banks in the UK were found to be carrying out one or more of those practices, which operated against the public interest. Moreover, it finds that the average return on equity between 1998 and 2000 is 36 per cent. Compared with an estimated cost of equity of about 15 per cent. We however, recognise that a number of adjustments should be made to these figures. It continues: despite the cautious approach we have adopted to a number of those factors, we have concluded that the four largest clearing groups … are together charging excessive prices … 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.

Profits are absolutely central to the effective and efficient working of a market economy. They are the engine in the dynamic process of competition, innovation and meeting the needs of consumers. Where high profits are due to relative efficiency rather than monopoly—as the Competition Commission found in the case of Northern bank—the question of whether high profits are against the public interest does not arise.

Where high profits are derived from an absence of competition or through a complex monopoly situation, and are earned by overcharging customers, the effectiveness of the market is reduced. Indeed, as the Competition Commission observed, where the consumers concerned—in this case small and medium-sized companies—are themselves operating in a highly competitive market, the adverse effects on the public interest are exacerbated.

Because practices carried out by the eight main clearing banks—and the overcharging by the four largest in England and Wales—were found by the Competition Commission to operate against the public interest, it recommends that all eight clearing banks identified make a number of changes to their practices to help promote competition in this market, including being required to facilitate the switching of accounts; providing—if requested—a portable credit history; making the charges for their services more transparent; investigating the feasibility, costs and benefits of a national scheme for sharing branches; and extending the business banking code.

Taken together, the Competition Commission states that those remedies, along with others that it proposes, would help to promote greater competition in banking services.

The Competition Commission also wants a decisive and significant shift towards what the commission consider to be competitive levels", and it states: competition and entry has to date not been effective in reducing excess profits and prices, nor is the immediate prospect of new entry in the commission's view sufficient to reduce excess profits and prices in a reasonable time period. It recommends a further transitional remedy requiring the four largest banks operating current accounts in England and Wales, where evidence of excessive charges was found, to offer all small businesses one of three possible options: a current account that pays interest of at least the Bank of England base rate minus 2.5 per cent; or a current account free of money transmission charges; or a choice between the two.

The Competition Commission concludes that since certain current banking practices have operated against the public interest, and led to small businesses paying more than they should for services, it would be wrong to let the situation continue for several more years until the behavioural remedies to promote competition took effect.

From our starting point—our belief in competition as the spur to efficiency—the Secretary of State for Trade and Industry and I considered the Competition Commission's report carefully. We examined the recommendations and remedies proposed to promote competition, to encourage new banking suppliers to enter the market and directly to address the lack of choice and information. Until the competition authorities are fully independent, the Government have legal responsibility for decisions on complex monopoly cases. In preparing the Government's response. We sought and received additional advice on the report's technical analysis and recommendations from independent experts.

The advice of the Director General of Fair Trading, which is published today, agrees with the Competition Commission that the limited extent and difficulty of switching bank accounts is a key factor in inhibiting competition in the small business banking market. In his advice, which I am also publishing today, Sir Bryan Carsberg, the former chairman of the International Accounting Standards Board and former Director General of Fair Trading, concluded that the framework adopted by the Commission is sound and would be accepted as appropriate by most independent experts".

Like the Competition Commission, we recognise that for banks to be robust and play their key role in the economy, it is necessary and desirable, at certain points in the economic cycle, for them to make higher than average profits. However, although we are pro-profit, we are also pro-competition, and we cannot be on the side of any monopoly or other behaviour that unfairly restricts competition in markets.

The Competition Commission explicitly concludes that practices by banks operate against the public interest. Having carefully considered its report, the Secretary of State for Trade and Industry and I agree that action must be taken to promote greater competition.

First, the Competition Commission recommends that banks be required to facilitate the switching of accounts to enable small businesses to move accounts from one bank to another easily and quickly by completing a substantial percentage of all account switching within five working days, by publishing their performance objectives and efficiency in achieving them, and by imposing no charges for closing accounts. We agree with the commission's recommendation.

Secondly, the commission recommends that banks be required, if requested by a small business, to provide a portable credit history—a statement of the business's credit performance that can be passed to other banks arid which will improve the prospects for smaller competitors and new entrants into the banking sector. We agree with the commission's recommendation.

Thirdly, the commission recommends that banks be required to stop bundling services and imposing requirements on small businesses to hold a current account in order to obtain a loan or deposit account. We agree with the commission's recommendation.

Fourthly, the commission recommends that banks be required to make their service charges more transparent by routinely publishing their standard tariff prices for money transmission services and for interest paid on current and short-term deposit accounts, allowing small businesses easily to compare charges. We agree with the commission's recommendation.

Fifthly, because lack of access to a bank branch represents a key barrier to many substantial new competitors entering the market, the commission recommends that banks be required to investigate the feasibility, costs and benefits of a national scheme for sharing branches, and to publish their findings within a year. We agree with the commission's recommendation.

The Julius report concluded that the principles underlying the voluntary code for banking and mortgages for households should be extended to small businesses. Consequently, the Competition Commission made several other informal suggestions, some of which are incorporated in the new code announced by the British Bankers Association last week, which we welcome. The Competition Commission recommends that other suggestions, such as banks improving their procedures for dealing with errors and paying compensation, should be added to the code.

Those and other remedies proposed by the Competition Commission are in pursuit of competition and we ask the banks to work with the Director General of Fair Trading to implement the recommendations speedily.

In seeking an earlier and decisive switch towards a better service for small businesses, the Competition Commission considered more radical proposals—for example, divestment of bank branches and small and medium-sized enterprise banking businesses, whereby banks would be forced to give over some of their branches or customers to other banks. It also considered a licence fee, an obligatory fund and a windfall tax. The Competition Commission rejected those proposals, and we agree with that rejection.

The Competition Commission recommends a transitional remedy that would not prevent companies from earning high profits but would simply ensure that they could do so only as a result of a genuine competitive advantage—a remedy that imposes no restriction on new entrants … and should not interfere with the natural emergence of desirable competition". Thus the commission recommends, and we agree, as a transitional measure, that the four largest banks operating current accounts in England and Wales be required to offer any small and medium-sized enterprise either a current account paying interest of at least the Bank of England base rate minus 2.5 per cent, or a current account free of money transmission charges, or a choice between the two. The Director General of Fair Trading recommends, and we agree, that we ask him to obtain undertakings from the banks to implement that remedy.

The commission suggests that all remedies be put in place within six months. We hope that the Director General of Fair Trading will be able to reach an earlier agreement on the transitional remedy. The commission also recommends that the Director General of Fair Trading review all the remedies three years after their implementation. Under the Fair Trading Act 1973, there is flexibility for a review to take place sooner. We state our view that if at any time within the three years the Office of Fair Trading observes more effective competition emerging, or banks have proposals that they believe would make for a more competitive environment, an early review could and should take place.

Our goal is to create an environment where new entrants can compete with existing banks on a fair basis and both can secure more competitive services for small businesses. I urge the banks to work with the Director General of Fair Trading to achieve what is in everybody's interest: a better service and a fairer deal for Britain's 3.5 million small businesses.

Mr. Michael Howard (Folkestone and Hythe)

I thank the Chancellor for affording me some advance notice of the statement and the large report that he has published today. However, may I also register my protest at the fact that this statement did not appear on the annunciator until seven minutes past 12, giving hon. Members only 23 minutes' notice that the Chancellor intended to make a statement today, whereas this morning's newspapers and news broadcasts were full of speculation that he may well make such a statement. The other statement that is to be made today was announced on the annunciator at 11 o'clock this morning.

There was absolutely no reason why this statement should not have appeared on the annunciator at the same time. It is typical of the contempt that the Chancellor shows for the House every time he comes before it. I hope he will not suggest that there is any question of market sensitivity, because, as I said the newspapers and news broadcasts this morning were full of speculation that such a statement might be made and, anyway, I would expect the Chancellor to know by now that the markets can do in 23 minutes what they can do in an hour and a half.

Can the Chancellor confirm that the Government received the report of the Competition Commission five months ago? Can he explain to the House the reasons for the delay in publishing it? Was that delay entirely due to the widely reported in-fighting between the Treasury and the Department of Trade and Industry, or were there other factors and, if so, what were they? Would it not have been very much better had the Government published the commission's report when they received it, so that there could have been consultation on its recommendations before the Government made their decision?

On the substance of the statement, of course I entirely agree with the Chancellor that the best protection that can be given to the consumer, including the consumer of banking services, is competition. Is it not the case that since the commission began its inquiry, there has been a welcome and not insignificant enhancement of competition in this sector, with the entry of HBOS, Abbey National and the National Australia group into this sector of the market? Can he clarify whether the recommendations made by the commission, which he has accepted, will apply to all the banks in this sector, including new entrants, or only to the biggest four banks, which, as he said, cover 86 per cent. of the market?

More widely, would not the greatest contribution that the Chancellor could make to enhance competition in the provision of banking services be to work for the relaxation of the provisions of the UCITS directive, which inhibit the development of money market funds in this country, along the lines of the measures that have been so successful in the United States?

I accept, nevertheless, that when competition is not working effectively, it is right that action should be taken to improve it. I, too, would accept most of the recommendations of the Competition Commission. There are some that require further consideration than can be given in half an hour, and we shall give them that consideration. For the most part, however—although not in every respect—it would appear that the Competition Commission has arrived at some sensible proposals, and the Chancellor is right to accept them.

Will the Chancellor tell us a little more about some of the recommendations? For example, he says that he accepts the commission's recommendation that banks be required to investigate the feasibility, costs and benefits of a national scheme for sharing branches and to publish their findings within a year. What action does he have in mind for banks that are either unable or unwilling to conduct such a feasibility study?

Does not the Chancellor recognise, as he stands here today posing as the champion of small business, that he and his Government have done enormous damage to the small business sector in this country by the piles of regulation that they have imposed on small business—4,642 last year alone: one for every 25 minutes of every working day in the year? Is that not the main factor that is impairing the ability of small business to prosper? Is not the Chancellor failing completely to take any action to remedy it?

Mr. Brown

If the shadow Chancellor supports us on the competition measures that we are putting forward today, he should have been able to tell us that he supported the switching of accounts, the portable credit histories, the changes in the British banking code and the transitional remedies. He noticeably refused to do so. If he is not prepared to support those measures, he will find himself at odds not only with the small business organisations of this country—including the Federation of Small Businesses—but with the Competition Commission.

It was the Conservative party that said, in 2001: Competitions decisions are best left to independent regulators and the competition authorities. The Competition Commission recommends all these measures. The shadow Chancellor should, therefore, be saying that he will back up the competition authorities, but he has not been prepared to do that. We have suggested a number of remedies, particularly the transitional remedies, on which he has been absolutely silent.

On the question of the publication of the competition report, it was received in October. We then put it to the Director General of Fair Trading for advice, and also asked Sir Bryan Carsberg to work on it. We have considered all the recommendations in detail. There have never been so many recommendations in one report on banking as there are in this report, and we have considered them all carefully. I think that the House would prefer that we proceeded in that way on this matter.

Equally, as for a statement to the House on this matter, the right hon. and learned Gentleman himself was the Minister responsible for the City and financial services in the 1980s. No monopolies and mergers statement was brought before the House. We are bringing a statement before the House in a way that has never been done before. I also have to tell the shadow Chancellor, who is a barrister, that we have had to satisfy all the legal technicalities involved in the publication of the report, which also goes to the Stock Exchange—[Interruption.]—none of it has appeared in the press—and which also has to go to the banks themselves.

There now follows a period during which the banks will be approached by the Director General of Fair Trading on the basis of the undertakings relating both to the transitional and to the other remedies. He will then report to the Secretary of State for Trade and Industry and to me.

The shadow Chancellor asked about the changes that had taken place, with a number of companies announcing that they wanted to enter the market for small business. That, as he will discover, is dealt with in both the Competition Commission's report and in what we have received from the Director General of Fair Trading. The report says We do not believe that behavioural remedies will have sufficient impact on competition within the next two to three years to ensure that the incidence of excessive prices for banking services … of the four largest clearing groups in England and Wales … would disappear in a reasonable period of time. That is exactly why the Competition Commission has proposed the transitional remedies on which the shadow Chancellor—because he has not faced up to these questions—is silent this morning.

The report says that lack of competition has permitted and would continue to permit overcharging of SMEs for these services. The Competition Commission does not believe that, even given additional new entrants into the market, behavioural remedies—entry and more competition—will of themselves have sufficient effect on services to small businesses over the next two or three years. That is why the Director General of Fair Trading has recommended the transitional remedies.

I hope that, just as after a time consensus was reached on the independence of the Bank of England and acceptance of its interest rate decisions, consensus can now be reached on the independent competition authorities. I hope that after some reflection the Conservative party will agree not only that competition is right in general, but that the specific remedies that have been recommended are necessary if we are to do our best by the 3.5 million small businesses in this country.

Mr. John McFall (Dumbarton)

The Select Committee on the Treasury will welcome the report. In the next month or so, we shall be inviting the banks to gibe evidence on what they have done since the Cruickshank report.

Is it not the case, however, that too many small businesses are still being charged as much as 250 to 300 times more than is justifiable? Is it not the case that not enough small-scale risk capital is available, and very little venture capital? Those problems must be tackled if we are to achieve our twin aims of more jobs and more productivity. Does my right hon. Friend agree that the banks will have to go on playing their part and come to terms with their wider role, responsibility and duties to the communities from which they derive their funds?

Mr. Brown

I thank my hon. Friend for his comments, and welcome the work that his Select Committee is doing on banking.

The banks—I pay tribute to them—are working with us on the creation of venture capital funds in the regions and the high-unemployment communities. Britain is now more advanced than other countries in terms of its development of its venture capital industry in the regions, and I hope that the banks will continue to work with us to solve the problem of the venture capital funding gap in some high-unemployment areas.

Let me refer to some of the general measures. As I have said, there are 3.5 million small businesses in the country. It is estimated that they were overcharged by some £725 million in 1998–2000, although that depends on the interest rate that was prevalent at the time. Both the transitional and the long-term remedies take account of the problem. I hope that the banks will work with us to find a solution to what most Members on both sides of the House would agree has been a perennial difficulty for small businesses in all our constituencies, some of which contain 3,000, 4,000 or even 5,000 of them—many very small indeed. We are in a position to make progress, and I hope there will be consensus on the report's findings.

Dr. Vincent Cable (Twickenham)

I welcome the Chancellor's statement, and the Government's commitment to prompt and full implementation of the report's recommendations.

Does the Chancellor agree that the report fully vindicates the findings of the Cruickshank report, published two years ago, despite their rubbishing by the banks themselves? Does he agree with the central conclusion of that report that there are profound competition problems in this sector as a result of complex monopoly, the leading clearers' control of the central clearing system and, indeed, the banks' continued enjoyment of regulatory privileges—for instance, the fact that the Government are their lender of last resort? Does the Chancellor accept that basic analysis?

Does the Chancellor also accept that his cautious approach—it has taken two years, since the publication of the Cruickshank report, to reach the conclusions— has meant that the small business sector had roughly £1.5 billion of excess profits taken out of it by the banking system? That has swamped the positive incentives that he put hack into small business, such as £200 million for the small business research and development tax credit. As the Office of Fair Trading report rejects the idea of a levy on banks, what measures does he propose in order to retrieve some of the £1.5 billion excess profit of the past two years and to put it back into small business?

The Cruickshank analysis has been vindicated. It suggested that there was up to £5 billion of excess profits altogether, much of it taken from personal consumers as well as small business. In light of that, when do the Government propose to implement their long-promised recommendations to introduce Paycom, a payments regulator? Ministers have told me in response to written and oral questions and Adjournment debates for more than two years that that is imminent, but it has yet to materialise.

Mr. Brown

I am grateful to the hon. Gentleman, who has taken a long-standing interest in such matters. I am also grateful to him for dealing with the specifics, unlike the shadow Chancellor.

First, Ms DeAnne Julius's work on the banking code is moving ahead as a result of the Cruickshank report. Secondly, we are committed to opening up the money transmission services. That is Government policy. Thirdly, however, we reject a windfall tax, as does the Competition Commission. The previous Conservative Government imposed the only windfall tax on banks, and that was for the same reason—to deal with the failure of banks to pay interest on current accounts at a time of high interest rates in the early 1980s.

We believe that because the injury is to small businesses themselves, the best thing is to reduce costs for small businesses. That is why the option for the transitional period is either to pay a rate of interest on current accounts or to provide free banking services for the money transmission services that are involved. Both of those could be worth substantial amounts of money to a small business if properly implemented, and it is now for the Director General of Fair Trading to work on that.

Our proposals are directed at the problem, which is that small businesses must get a better deal. As I said, I hope that we can make progress quickly on the recommendations. Although the Competition Commission says that there are six months in which the undertakings can be discussed, we hope—and I believe—that the Director General of Fair Trading also hopes that we can move forward sooner.

As for incentives for small business, the hon. Gentleman will have noted my statements in the past few weeks in which I have made it clear that we are determined to do more to help small businesses to amass the funds to invest and to be able to seek equity, to start exporting and to hire new employees. That is our aim, and it will be advanced by measures in the Budget.

Mr. James Plaskitt (Warwick and Leamington)

The 5,000 small businesses in my constituency will welcome the Chancellor's statement. The commission's report is a serious document. It basically finds the banks guilty of monopoly exploitation. In view of that, does my right hon. Friend agree that the banks should respond quickly to the findings? They should at least do something about charges and current account terms in less than the six months envisaged by the report. That would make a start on repaying more than £700 million-worth of overcharges.

Mr. Brown

I am grateful to my hon. Friend, who is also a member of the Treasury Committee. I hope that its work on this matter will yield results.

My hon. Friend is right to say that we should make progress as quickly as possible. All hon. Members know that we are dealing with a long-standing grievance and, indeed, a long-standing problem; the evidence is that action should be taken. However, I stress to him and the 5,000 businesses operating in his constituency that will benefit from the measures announced today that a healthy and profitable banking sector is in everyone's interests. There will be periods in the economic cycle in which banks should and will have to earn above average profits. Where those arise from the absence of competition, we should act. Therefore, I hope that all the recommendations that are central to the improvement of competition can be followed through.

On the transitional remedy, my hon. Friend will note that the Director General of the British Chambers of Commerce said only a few days ago: To stop this overcharging, we would advocate that the Secretary of State must cap the charges of the big four banks until the competition is more secure. Our remedy is more flexible than that, but it is clear that many of the business organisations are demanding action, and demanding action now. We can be both pro profit for banks and pro competition.

Sir Teddy Taylor (Rochford and Southend, East)

In making such major changes, will the Chancellor bear in mind the danger of undermining one of our most successful institutions, which has high standards that are greatly appreciated by people all over the world? Does he accept that, with regard to small businesses, the banks have to carry a massive burden of bad debts and failed businesses, and that it is only fair to take that into account? What are the figures?

On competition, does the right hon. Gentleman accept that the Clydesdale bank in Scotland—happily owned by Australians—pays interest on its current accounts to people like me? Is it not unfair to undermine the banks by talking only about the costs and not the massive burdens? Will he give a figure on the banks' bad debts and failed businesses?

Mr. Brown

I am grateful to the hon. Gentleman, who has taken an interest in these matters at a British and European level for some time. He seems to have a more intimate knowledge of the banking system than the shadow Chancellor.

The hon. Gentleman rightly raises the assessment of the methodology that was used by the Competition Commission, and what allowance has been made for the large amount of bad debts that have to be written off by the banks. The Competition Commission also took into account in its methodology the effects of the economic cycle in which, at certain points, higher than average profits can be expected to be earned. There is also the issue of the allowance made for intangible assets by the methodology adopted by the Competition Commission.

We have considered these matters carefully, as has the Competition Commission. It is because the questions raised by the hon. Gentleman are rightly raised by members of the public and the banks that we asked Sir Bryan Carsberg, a renowned international expert on these issues, to look at the methodology. The notation with the documentation that the House has shows that he has expressed his confidence in the general approach taken. I believe that people will reach exactly the conclusion that we reached when they look at the figures that are available.

On the general point about banks, of course the hon. Gentleman is absolutely right. Britain wants and should be proud of a healthy, profitable banking sector, but it cannot be at the expense of little competition or a complex monopoly. When that is the case, it is our duty to take action. The hon. Gentleman speaks from the Back Benches and has done for these past 20 years; I think that he will agree that it is sad that when this problem was put to Conservative Ministers in the 1990s, they did nothing about it.

Mr. Barry Gardiner (Brent, North)

For 10 years during that period, and before I entered this House, I ran a business in the City and suffered exactly the sort of banking disservice that was provided to small and medium-sized enterprises such as mine. I welcome this report with the enthusiasm of somebody who suffered under those practices for so long.

My right hon. Friend referred to radical measures which have been discussed and considered in the report. In particular, I would have urged him to pursue the windfall tax, but I take the reasons and the rationale behind his decision not to pursue that course and go out of line with the regulator's suggestions. However, if there is any dilatoriness on the part of the banks in implementing the recommendations, sorting out their service to the public and repaying the extra profits that they have made through an improvement of service, I urge my right hon. Friend to hold that option up his sleeve.

Michael Fabricant (Lichfield)


Mr. Brown

The hon. Gentleman should not be so unkind to my hon. Friend the Member for Brent, North (Mr. Gardiner), who at least has views on the matter that he is prepared to express, unlike the shadow Chancellor, who had nothing to add to the debate.

My hon. Friend is right to say that action is needed now. That is why the proposals have been put forward under such a time scale. It is also the case that the new banking code proposals—I applaud the banks—were made in the past few days. Many of the proposals are a welcome advance on the previous position, and I welcome the specific recommendations in them. The Competition Commission believes that there should be further reforms of the banking code and has made informal suggestions about compensation and other matters where it feels there are errors that should be taken into account. Equally, we can move forward quite quickly with the other recommendations.

I do not agree with my hon. Friend about the case for a windfall tax, as I have explained. Perhaps the Conservative party will be the only party to propose that, as it imposed a windfall tax on the banks in the early 1980s. It is important to say that we are both pro profit—we need the banks to be profitable—and pro competition.

Dr. Julian Lewis (New Forest, East)

Does the Chancellor accept that the statement that he began reading at 12.30 pm was one of the longest that he has made since he took office other than on Budget day? Does he accept that that means that it must have been a considerable time in the drafting? Does he also accept that he has given a totally inadequate response to the shadow Chancellor on his discourtesy in notifying the House at only seven minutes past 12 that such a statement would take place? Will he give an undertaking not to show such discourtesy to the House in the future? Finally, does he recognise that that was not only a discourtesy to the House and to the Opposition, but that it particularly upset his friends in the Liberal Democrats, whose Treasury spokesman was not even here to hear his statement?

Mr. Brown

I take it that the hon. Gentleman was trying to make a point about the Liberal Democrats by a very circuitous route. The fact of the matter is that this Government are bringing the Competition Commission report to the House with a statement, which he should applaud. We are also the Government who are publishing all the documents: the report of the Director General of Fair Trading, Sir Bryan Carsberg's report and today's report. We are doing so in a way that does not offend the normal procedures that must legally be pursued for Competition Commission reports. I would hope that the shadow Chancellor, as a lawyer, would begin to understand that.

All these points about procedure from Conservative Members are designed to obscure the most important fact to come out of this discussion—that they cannot even tell us at this point whether they support the major remedies that are proposed.

Mr. Jim Cunningham (Coventry, South)

I welcome my right hon. Friend's statement. Could he clarify what action is proposed to reimburse small businesses? I am sure that he knows that although most businesses are overcharged, they do not receive 100 per cent. reimbursement. Will he say a little more about that?

Mr. Brown

We are proposing action for now and for the future; we are not proposing retrospective action and neither was the Competition Commission report. We have said that competition decisions should be independent of political interference. I hope that, in the light of what the Conservative party said at the election and what the Liberal Democrat party has said consistently, there can he all-party consensus that these decisions are best made by independent authorities under rules established by the House in legislation. While we prepare to legislate for that, we have the legal responsibility to announce and make those decisions.

We have done everything in our power. We appointed Sir Bryan Carsberg and consulted the director general, arid my right hon. Friend the Secretary of State for Trade and Industry and I have studied in detail all the recommendations. It is right to go ahead now to implement those recommendations, which have been put forward by the Competition Commission, supported by the Director General of Fair Trading—the methodology having been assessed by Sir Bryan Carsberg. I hope that there can be consensus on that.

Mr. John Redwood (Wokingham)

I welcome the Chancellor's strong commitment to competition and the remedies that will improve the service to small businesses. I wish that his belief in competition would extend to the currencies that they might bank in so that they could continue to have the choice of the pound or the euro. Is he at all worried that if the banks plan sharing branches at the same time as their revenues are cut, their response will be another big round of branch closures? What will he do to stop that getting out of hand and damaging the service, which we would not want?

Mr. Brown

I see no need for that to happen, but it is precisely so that the details can be studied that the Competition Commission has recommended—we support that recommendation—that the banks should prepare a report for the Director General of Fair Trading. I appreciate that that is one concern that will he expressed. We believe that it is a soluble problem. The right way to proceed is for the banks and the director general to consider those detailed undertakings and for the work to be done on that. I take it that the right hon. Gentleman supports not only the independence of the Competition Commission but its recommendations in general.

Mr. Redwood

indicated assent.

Mr. Brown

The recommendations are detailed and it is good that we have the right hon. Gentleman's support. I hope that we can now have the support of the shadow Chancellor.

Mr. Ben Chapman (Wirral, South)

Does my right hon. Friend agree that, because a successful small firms sector is essential as the seedbed of future growth, the banks, by gaining excess profits—in effect, by ripping off small companies—have damaged the enterprise culture? Notwithstanding his earlier remarks, does he think that, in those circumstances, a withholding or a windfall tax might have been used to provide the venture capital and the higher risk financing that those small firms so desperately need?

Mr. Brown

I know that my hon. Friend was formerly a business adviser. I also know that during the next few days strong feelings on these matters will be expressed in every phone-in programme and letters column because people feel strongly about the costs of banking services and about the failure in many cases to pay interest on current accounts.

However, we have a balanced set of recommendations that point our way in both the present and the future. I am in favour neither of the withholding tax in Europe nor of the windfall tax that has been examined by the Competition Commission. The commission examined and rejected the tax—as we are right to do—but I hope that we can move ahead with agreement on all the other measures that offer the prospect of opening up competition in the small business market while giving small businesses an immediate remedy as we wait for that competition to take effect.

Mr. Michael Weir (Angus)

Neither the Scottish National party, Plaid Cymru nor any of the Ulster parties received an advance copy of the Chancellor's statement. Surely it is unacceptable that some parties received an advance copy while others did not.

That said, on behalf of the SNP and Plaid Cymru, I welcome the recommendations as a step forward. We are especially interested in the Chancellor's remarks about a national network of sharing branches. Does he realise that, due to branch-network closure programmes over the past few years, there are no bank branches at all in many rural and some inner-city areas? When he discusses those matters with the banks, will he consider proposals for extending banking to those areas to encourage small businesses to set up and continue there? When there are no bank branches, it is difficult for such businesses to continue to operate—especially those that are cash-intensive.

Mr. Brown

It is precisely for those reasons that there is work to make the network available to new entrants. It is also for those reasons that the Under-Secretary of State for Trade and Industry, my hon. Friend the Member for Edinburgh, South (Nigel Griffiths), who has responsibility for small business, has taken a great interest in bank branches in rural areas. The Post Office also has a role.

I ask the House to bear in mind not only that, historically, statements about the Competition Commission, or the Monopolies and Mergers Commission, have not been made in the House—that was the practice followed by the previous Government—but that the shadow Chancellor asked me a question. I wrote to him this morning, stating that: The reports contain information about particular businesses"— individual companies— which until the report is published is confidential under section 133 of the Fair Trading Act and onward disclosure is prohibited under this section. I have to take account of the legal requirements on me when I make information available before a statement. The previous Conservative Government never made statements on such matters; they must have had a good reason at the time.

Roger Casale (Wimbledon)

I welcome my right hon. Friend's statement because—as perhaps he can confirm—many thousands of businesses in my constituency might be being overcharged by between £250 and £300 a year for banking services. Although Members on both sides of the House—but not the shadow Chancellor—support the proposals, does my right hon. Friend agree that it is the Labour Government who are listening to the needs of small businesses through the operation of the Small Business Council and other bodies? It is this Government who are standing up for the interests of small businesses and taking action to promote enterprise and competition. It is this Government who are succeeding for small businesses where the previous Government failed.

Mr. Brown

My hon. Friend is absolutely right. There are more small businesses in this country, and the measures that we are adopting are designed to encourage even more. He is also right to say that, if the overcharging from 1998 to 2000 is in the order of £725 million a year—of course that depends on the interest rates in operation at any particular time—many small businesses are paying a high tariff for their banking services, which could be removed with this remedy, or they are not receiving interest on their current accounts, which the banks can now consider. The flexibility of our remedies allows banks to make a choice between those two.

I believe that the Liberal and nationalist parties are prepared to support our measures. It is unfortunate that, although the putative shadow Chancellor, the right hon. Member for Wokingham (Mr. Redwood), has expressed support for them, the shadow Chancellor himself has still not said what he thinks.

Several hon. Members


Mr. Speaker

Order. I want to give everyone who wants to the opportunity to speak, but I ask hon. Members to be brief and ask one question, and one question only.

Mr. James Clappison (Hertsmere)

The Chancellor gave the costs of overcharging as £725 million. What is his estimate of the total cost to business of additional Government regulation imposed in the past two Parliaments? Are those who say that it is £5 billion right?

Mr. Brown

The Minister of State at the Cabinet Office announced only a few days ago the scrapping of a whole series of regulations that had been introduced by the Conservative Government and other previous Governments. We are working with the small business community in our regulatory taskforce to remove regulation. The hon. Gentleman should remember that we cut the rate of small business tax from 23p to 20p—to the lowest rate in our history—and that we introduced a 10p starting rate for small businesses on profits up to £10,000, and a rate between 10p and 20p on profits from £10,000 to £50,000. He should also remember that, despite all the talk from the Conservative party, it was the Labour Government who cut capital gains tax.

Mr. Gareth R. Thomas (Harrow, West)

Small businesses in my constituency will see the publication of the report and the Chancellor's actions as vindication of their deep-seated concerns over many years about excessive profit-taking by the largest four banks. Is there any hope of his predecessors as Chancellor heading to Palace Green to apologise for failing to take the action that he has taken?

Mr. Brown

That is a matter for previous Chancellors. My hon. Friend is right to say that it was time to take action. It is regrettable that at the time when small businesses were complaining most, especially in the early 1990s, so little was done to help them. It is possible to build a consensus around developing the enterprise culture, and I would have thought that all parties would now be prepared to join it. My remarks are directed to the shadow Chancellor, and I seek his views on our proposals.

Michael Fabricant

Like my right hon. and learned Friend the shadow Chancellor, I welcome the statement, but as with all such matters, the devil is in the detail. It is unfortunate that the Chancellor had cloth ears when my right hon. and learned Friend was speaking.

It is a great disappointment to me personally, and no doubt to others who are listening to our debate, that the Chancellor did not say anything about funds deposited by ZANU-PF, Mugabe and others in this country, which could have been seized, and—

Mr. Speaker

Order. There is no need for the Chancellor to answer that question.

Mr. John Burnett (Torridge and West Devon)

When does the Chancellor believe that the cartel of the money transmission service or central clearing will finally he ended?

Mr. Brown

We will announce detailed proposals on that matter in due course.

Mr. David Laws (Yeovil)

Has the Chancellor concluded that there is clear evidence of monopolistic practice in the personal banking market, and if so, what is the timetable for taking action?

Mr. Brown

That is not the subject of the statement, which is about small business banking. We referred the matter to the Competition Commission, which has produced a report that is now before the House. Along with the commission, we are proposing to take action. As for the personal banking sector, that is not the subject of the review.

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