23 August 2007
Small and medium sized businesses are reeling from the shock announcement that the Competition Commission is to lift the price controls it imposed in 2003 on the UK's four largest banks in their provision of banking services to SMEs.
The move, which will be seen by SMEs as a retrograde step, will allow banks to pay levels of interest below those set by the Commission in 2003.
For the last four years, the high street banks (including Barclays, HSBC, Lloyds TSB and Royal Bank of Scotland which control 85 per cent of small business accounts), have been obliged to pay a minimum of base rate, less 2.5 per cent, on business bank accounts.
The price controls were introduced in 2003 to improve transparency and to make switching accounts easier for SMEs seeking business banking services, the Competition Commission said.
But the Competition Commission now says that price controls can be lifted because new entrants to the market, such as HBOS, Abbey, and Alliance & Leicester, have increased competition and made it easier for small businesses to change banks.
Despite the lifting of price controls, banks will remain obliged to publicise any changes in their charges and will not be allowed to make the supply of SME banking services conditional on the customer taking other services, such as loans or personal current accounts.
The Office of Fair Trading said it supported the decision because the market had improved and that healthy competition would maintain a buoyant market.
The commission's decision is provisional, and the deadline for responses on its consultation is 28 September.
For more on business banking visit:
http://www.find.co.uk/banking/commercial_banking_centre/business_banking_&_factoring
http://www.find.co.uk/banking/commercial_banking_centre/venture_capital_&_business_finance
http://www.find.co.uk/banking/commercial_banking_centre/invoice_finance_and_factoring