Brown to target the big banks

CHANCELLOR Gordon Brown is to crack down on banks to counter accusations that they are hammering small businesses in a £1bn-a-year rip-off. The big four, who have just announced profits of £17bn, are in the firing line for a major review of regulation. They are accused of overcharging on overdrafts and loans, delays in clearing cheques and a failure to pay decent or any interest on accounts.

Treasury insiders revealed at the weekend that Brown is concerned that the banks are stifling Britain's enterprise culture. Keen to live up to his 'Iron Chancellor' reputation, he will make clear that entrepreneurs take precedence over bank profits. 'New Labour is not in thrall to big business but prepared to challenge vested interests, promote competition and open enterprise to all,' he said recently.

Those comments have set the tone for how Brown intends dealing with the outcome of a Competition Commission inquiry into the banks' fleecing of small firms. He will meet small business leaders in London today amid promises that his Budget next month will be designed specifically to help the sector.

There are concerns that in some parts of the country, major names such as NatWest, Barclays, Lloyds-TSB and HSBC have an effective monopoly. Under proposals in the Enterprise Bill, the bosses of banks which abuse such power could face massive fines or even jail.

The Brown proposals are understood to stop short of ordering a windfall tax on bank profits. But they will still cut billions from their bottom line.

Regulation of charges, forcing banks to pay interest on current accounts and making them contribute to a new enterprise fund to support small businesses are potential remedies. So are making the banks speed up cheque clearance and moves to protect entrepreneurs from losing their homes if the business fails. The Chancellor is looking at ways to encourage foreign banks to come in and offer small business accounts.

The Competition Commission inquiry into banks' handling of small business accounts was handed to ministers last October. It concluded that the banks are overcharging the country's 3.75m small firms by operating a ' complex monopoly'. However, there is understood to have been a furious row between Brown and Trade Secretary Patricia Hewitt over how to bring the banks to heel. Miss Hewitt is being portrayed inside Whitehall as a friend of the banks, happy to leave regulation to voluntary codes.

The Forum of Private Business, which will meet Brown today, welcomed the prospect of tough action. Head of policy Garry Parker said: 'Gordon Brown is dead right that the banks have not supported an entrepreneurial culture. They have been stifling small business with the result that fewer acorns have turned into oaks. Businesses would not mind paying charges if they got good service. But you are mostly dealing with nonentity junior account managers who haven't got a clue. Measures such as withdrawing overdraft facilities at 24 hours' notice, which closes down a business, demonstrate a total lack of social responsibility.'

A spokesman for the British Chambers of Commerce said: 'When it comes to the crunch, banks use their power to take as much as they can.' He said the most a successful small business with a turnover of less than £500,000 can borrow is around £15,000. Once the owners go for anything more, they are required to put their home on the line. 'This is about ensuring the bank is protected while squeezing the last penny out of a business which really has no choice but to go along with it.'

The British Bankers Association claims it is cleaning up its act and last week produced a code of practice which, among other things, will make it easier for businesses to change banks. The association launched its new code - widely seen as a belated attempt to prevent Brown's action - by saying it 'reflects a growing desire by banks to ensure small businesses are given the standard of service and support they need to help their business to flourish'.

Chief executive Ian Mullen said: 'Now, more than ever, banks and small and mediumsized enterprises need to have strong and positive relationships. Whilst banks have often been criticised for their lack of transparency and helpfulness to business customers, our research shows that this often arises through basic misunderstanding.'

Businessman Mike Savich welcomed the Chancellor's crackdown. His Manchester steel components firm has a monthly turnover of £1m and employs 12. Savich, 41, pointed to one example of his dealings with Royal Bank of Scotland, which owns NatWest, saying it showed the kind of problems small businesses are up against. He said: 'They suddenly withdrew £400,000 in credit which we had for a large deal with a good customer. We had to go to our best customers and ask them to pay upfront for orders, otherwise we had no money to run the business.'