We need competition in High Street banking

Financial services are a crucially important industry for this country. Last year 11 per cent of the Exchequer’s income came from the financial sector. We should both take pride in, and be aware of, the fact that many international financial organisations choose to be based in Britain. Of the £65 billion received by the Exchequer an estimated £25 billion is earned from globalised institutions who are internationally mobile.

But we mustn’t ignore that we have an oligopoly in the high street financing system. Lloyds HBOS owns 42 per cent of the residential mortgage market. There is an unhealthy lack of competition in SME financing. Small businesses complain that they have no alternative if a bank rejects them for a loan. In the past four years the stock of outstanding loans to non-financial companies has shrunk by 17 per cent. Recent research from BDR Continental found that only 43 per cent of small and medium-sized enterprises used external finance compared with 51 per cent just three months earlier. During the last quarter, a third of businesses that have applied for loans and a fifth of those that applied for overdrafts were turned down.

I would like David Cameron and Vince Cable to refer high street banking to the Competition Commission. I would like any investigation to examine credit unions, entry restrictions on different types of financial institutions, how to maintain consumer protection while having the full benefits of competition.

Such an initiative would not be “banker bashing”. It would be doing what Conservatives do best – reforming the market to make sure capitalism works for the masses.  David Skelton is spot on when he writes:

Theodore “Teddy” Roosevelt, the all-action trust buster and war hero was every inch both a progressive and a conservative, appealing to all sections of society, emphasising what would now be called social mobility and staunchly defending private enterprise, while opposing corporate monopolies and vested interests… Learning from Roosevelt’s “square deal” and conservatism for the “little guy” might help modern-day conservatives – emphasising the importance of showing that everything the government does is to help people who are struggling to keep their heads above water.

Supporting increasing competition in banking would be a very “Teddy Tory” thing to do. It would send the message out that the Government wants a capitalist system that works for all of us.

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5 Responses to We need competition in High Street banking

  1. New blogpost: As the banking reform bill progresses, @betapolitics says it’s time for more competition http://t.co/7Z4cwpNS #fb

  2. New blogpost: We need competition in High Street banking http://t.co/2prKawBA

  3. RT @PlatformTen: New blogpost: As the banking reform bill progresses, @betapolitics says it’s time for more competition http://t.co/7Z4cwpNS #fb

  4. Sean says:

    An interesting point but Nick, as I have previously written, the government can actively improve competition today if they wanted to by paying civil servants/welfare recipients into second or third tier lenders provided there is a large enough branch network (The Co-Op, Santandar, and eventually Virgin Money would fall into this category). This would be a shock to the system and would hurt existing tier one lenders but it is an idea that would radically shake-up the sector in the short-term by giving a funding boost to these smaller players.

    I would also just add that splitting up banks is not an easy process, and would mean that shareprices will not recovery in the short-to-medium term.

  5. [...] Small businesses cannot grow unless their initiatives and endeavours are financed. As I wrote on Tuesday, the best way to filter good ideas from the bad is to have a properly competitive finance system. It is [...]

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