Banks told stop small firms rip-off

BARCLAYS, HSBC, Lloyds TSB and Royal Bank of Scotland stand accused of overcharging small businesses by almost £2.2bn in the past three years. The allegation came in the Competition Commission's report on small business banking published today and fully endorsed by Chancellor Gordon Brown and Trade Secretary Patricia Hewitt.

The big four clearers were told to begin to remedy the situation by offering interest on business current accounts at least as good as bank base rate minus 2%. Alternatively, small firms should be given free banking.

Compliance with this request will be closely monitored and the Director-General of Fair Trading, John Vickers, will launch a full investigation within three years.

The Competition Commission said the big four had been overcharging businesses by £725m a year since 1998. The commission also found that the quartet, along with National Australia Bank, Bank of Scotland, Bank of Ireland and Allied Irish Banks, limited choice and information to small firms.

Commission head Derek Morris said all eight banks operated against the public interest and should improve their behaviour in 12 specific ways. These include speeding up the process by which business customers can switch banks, and increasing price transparency.

Morris also suggested that banks look into how they could offer space within their branches to rival operators, and he said they should report the results of their research to the DGFT by this time next year. The Forum of Private Business said it was delighted with the commission's report.

Most banks were reserving judgment until they had read the 2,000-page document but Morris urged them to view his conclusions as an opportunity. 'Essentially, our recommendations are readily implementable. The banks could see this as an opportunity to move into a new era,' he said.

The Government called on the Competition Commission to launch an investigation into small business banking two years ago, after receiving a critical report from former arch-regulator Don Cruickshank which said banks overcharged customers by up to £5bn a year. The commission also suggested the banks' self-regulated code for small businesses, published only last week, be improved.