£100m bill for banking probe

GOVERNMENT-inspired investigations into small business banking have cost Britain's clearing banks around £100m. The charge is almost double that of the controversial Bloody Sunday inquiry.

The huge bill emerged as Trade Secretary Patricia Hewitt prepares finally to deliver her verdict on the competitiveness of the small business banking market. Hewitt is expected to call for only minor changes to the way in which banks conduct their affairs, risking accusations that enormous amounts of time and money have been wasted.

The Government first revealed its interest in small business banking in November 1998 when Chancellor Gordon Brown asked watchdog Don Cruickshank to look into the sector. Two years later, the Competition Commission was called upon to launch a full-scale investigation

The commission concluded a 'complex monopoly' existed in small business banking, meaning a small number of players dominated the sector. Last March, the commission produced a list of hypothetical remedies, including windfall taxes, price controls and the forced divestment of accounts. These draconian proposals are thought to have been ruled out by the Department of Trade and Industry. Instead it is likely to demand that banks make their charges more transparent and that they make it easier for customers to move to rival operators.

Banks have become increasingly frustrated by the investigation. Dozens of employees have been working full time on the competition issue since the Cruickshank inquiry was launched.

Costs then escalated when the Competition Commission was drafted in by Government. Yet the commission sent its report to the DTI last October, since when banks have heard virtually nothing. The normal length of time between submission of an inquiry and publication by Government is 10 weeks or less.

'Our costs run into tens of millions,' said one bank. 'This has been a very expensive exercise indeed,' said another.

The banking environment has changed substantially since

1998. Halifax and Bank of Scotland have merged and are keen to muscle in on the market and Abbey National is also making a determined push into the sector. Additionally, businesses are relying more on long-term support from their banks.