Banks set for £26bn payola

THE biggest High Street banks are poised to announce record profits totalling £26bn - or £1,300 for every household in the country. The bumper results, due to be published in the next few weeks, will provoke protest from consumer groups and MPs, and cause the Government major embarrassment.

Trade Secretary Patricia Hewitt is expected to issue her long-awaited report into business banking as early as this week, but it is widely expected to be a damp squib. Radical proposals for a windfall tax on banks' profits and an overhaul of the controversial chequeclearing system have been quietly dropped. The creation of a new banking regulator, urged in a damning report by London Stock Exchange chairman Don Cruickshank, has also been ruled out.

In the meantime, banks are raking in more money than ever. According to City analysts' forecasts, the combined profits of the six biggest banks rose by 22% last year. The largest, HSBC, is tipped to make £7.2bn, up £500m on a year earlier. Royal Bank of Scotland's profits are expected to have climbed to £5.5bn from £3.1bn.

Stuart Cliffe of the National Association of Bank and Insurance Customers said: 'These results will again show that we pay too much for banking services. We've had these reports saying that customers need better services and protection, but so far there's been very little movement. The banks are still sitting comfortably in their complex monopoly, absorbing money.'

Cruickshank famously accused the banks of making £5bn of excessive profits every year by overcharging customers and small businesses.

His findings triggered a Competition Commission inquiry. It found a 'complex monopoly' in banking services to small businesses with the Big Four - Royal Bank of Scotland, Barclays, Lloyds TSB and HSBC - controlling 90% of the market.

Hewitt received the commission's report in October, but has been sitting on it since then. She is thought to have ruled out tougher measures such as ordering banks to share their branches to allow more choice. Instead, she is likely to favour less draconian measures to promote competition, such as greater transparency on interest rate charges and making it easier for small businesses to move accounts.

The bank reporting season begins this week when Northern Rock posts its full-year results. Barclays will be the first of the Big Four to release results on 14 February, which are expected to show profits up by £500m to about £4bn.

Barclays denied that it was making excessive profits at customers' expense. 'We make a significant contribution to society,' said a spokeswoman. 'We employ 56,000 people in the UK and last year paid £944m in tax and £927m in dividends. That's £1.87bn that went back into the community.'

Barclays will be followed by Lloyds TSB, whose £20bn bid for Abbey National was blocked by the Government last year after a recommendation from the Competition Commission. Lloyds' profits are seen jumping £200m to £4.3bn, and Abbey's by £100m to £2bn. But consolidation within the sector continued when Halifax merged with Bank of Scotland. The merged group, HBOS, is tipped to turn in profits £1bn higher at £2.9bn.

The Big Four control 70% of the current account market, allowing them to keep charges high and returns on cash low. Each, for example, pays just 0.1% interest on balances in credit.