Brown reveals measures to improve SME banking

The government has moved to assure small businesses that the 'big four' high street banks will no longer be able to hold on to their monopoly in the provision of banking services to the SME sector.

Following the release of the Competition Commission's report into the state of SME business banking, the Chancellor Gordon Brown came down hard on what he described as the "excessive profits" created by the four high street banks through their exploitation of their market dominance.

While Mr Brown moved to rule out the idea of imposing a windfall tax, he revealed a variety of measures to ensure small businesses gain access to more flexible financial services.

Under the new rules, banks will be required to provide a greater degree of financial transparency, making it easier for clients to transfer their accounts, removing fees for the closure of accounts and informing clients when a charge has been levied as a result of an unauthorised overdraft. Banks should also provide a portable credit history which can be transferred between financial organisations, as well as an end to the bundling of services, and the requirement to hold a current account before making an application for a loan.

An interim report from the Competition Commission - published in March 2001 – revealed that many small businesses were losing out, in terms of interest rates and annual charges, with another investigation by Don Cruickshank showing the 'big four' as holding the SME sector to ransom at a sum of around £1.5 billion a year in profits.

However, it has taken some time for the report's recommendations to filter through to definite action, as the issue places the government in a tricky situation of how best to handle the face-off between regulation and competition.

The Chancellor's comments have suggested that the government has finally opted for the "softer" option – that of insisting on greater competition – in a move designed to keep the banks happy while still tackling some of the issues raised by both the Cruickshank and the Competition Commission reports.

(CL)