In a letter published today (Friday) by the EEF, BCC, FSB and IOD, the four leading business groups called on the government to increase competition in the banking sector. This comes ahead of the publication of the final report of the Independent Commission on Banking on Monday.The full text of the letter follows:
The recovery of the UK economy has entered a more challenging phase recently with activity slowing. At the same time, global economic uncertainty is worsening, as exemplified by recent turmoil in stock and bond markets.
These negative external forces are largely out of our control. However, they give renewed emphasis to the point that Government must be doing everything it can to assist the growth of British businesses and the wider economy. One clear area where we must push further is on improving access to external finance, particularly for the UK’s SMEs, which rely heavily on our banking sector – an issue on which Sir John Vickers’ Independent Commission on Banking will be reporting very soon.
We acknowledge some adjustment to lending practices following the financial crisis was and remains necessary and that the banking sector cannot be expected to return wholesale to previous practice on SME lending. The arguments around the supply and demand of finance are not black-and-white and we are all working with the major banks to try to repair damaged relationships.
However, it is clear that the UK urgently needs more competition amongst banks lending to SMEs. Greater competition would help to address one of the biggest concerns – the overall cost of credit, which includes SME complaints about the level of fees and conditions over and above the headline rate of lending offered by banks. Increased competition would also ensure that potential customers are presented with a real choice from a variety of offerings on lending rates, fees, covenant levels, conditions, and service.
Smaller firms also need to be able to switch providers with the greatest possible ease when they receive poor service from their lender, and it will be vital for the Government to make this outcome happen regardless of the shape of Vickers’s final recommendations. But improving account portability will only make a tangible difference if it is backed up by meaningful competition throughout the sector.
With publication of Vickers’ final report imminent, we urge you to fully endorse and enact these constructive recommendations to enhance competition in the UK banking sector.
Terry Scuoler, CEO, EEF, the manufacturers’ organisation
John Longworth, Director General, British Chambers of Commerce
John Walker, National Chairman, Federation of Small Businesses
Graeme Leach, Chief Economist and Director of Policy, Institute of Directors