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10.17 pm
The Economic Secretary to the Treasury (Miss Melanie Johnson): I congratulate the hon. Member for Twickenham (Dr. Cable) on securing the debate. I welcome the opportunity to set out the considerable progress that the Government have made in implementing the Cruickshank report on competition in United Kingdom banking. I also welcome the other two hon. Members who are present--my hon. Friend the Member for Newport, West (Mr. Flynn) and the hon. Member for Northavon (Mr. Webb). We do not always have others with us in Adjournment debates, and I am pleased that this debate has attracted a wider audience.
The Government welcome the Cruickshank report and its conclusions. We are committed to acting on the recommendations to improve competition in the industry and services to consumers. The report contains numerous recommendations--55 in total. The Government have made several announcements of their implementation of the most important ones. For example, on the day of the report's publication, we announced that we would refer the supply of banking services to small businesses to the Competition Commission. On the following day, my right hon. Friend the Chancellor announced in the Budget that the Government would legislate to open access to the payment systems, and that the Financial Services Authority had been asked to report to him in three months on the way in which it intends to respond to the recommendations. Since then, we have actively followed up those and other recommendations. We hope to publish a formal response to the report shortly. The hon. Member for Twickenham was keen to know the timetable for that.
It may be helpful if I set out in a little more detail the Government's progress on dealing with the various recommendations in the report, and outline the next steps forward.
On money transmission, we have announced that we will legislate to open access to payment systems and to oversee access charges. The Cruickshank report highlighted several examples of consumers, retailers and businesses failing to get a good deal from their banks. The Government are determined to tackle those competition concerns.
In some parts of the industry, the mere publication of the report has produced a welcome change in behaviour. The hon. Member for Twickenham attributed that change to consumer pressure, but I believe that it is due to a mixture of public and Government pressure.
For example, Link has decided to open up its automatic teller machine network to non-bank ATM providers. Such providers are interested in providing not just ATMs in more diverse locations, but innovative services beyond merely handing out cash. That is a welcome development. As for the important issue of charging for ATM withdrawals, Link has banned double charging--the charging of both a surcharge by the ATM owner and a so-called disloyalty fee by the consumer's own bank. It has also reformed its wholesale charging structures.
Moreover, we are seeing the development of competition in regard to cash machine charges. Some banks have already announced that they will impose no direct charges, while others have announced moves undercutting the proposed charges of their competitors. The Government welcome such competition, believing that it is the key to giving consumers effective choice and innovative services at a fair price.
Other parts of the industry have been slower to respond to the report. The Government have challenged the banks to improve transparency of charging, to base charges on economic costs, and to open up money transmission systems. We hope that they will make progress on their own, but in the meantime, the Government have had discussions with the Office of Fair Trading about what measures can be taken under existing legislation. The OFT is bound to investigate the Link and MasterCard schemes in the United Kingdom following formal notifications under the provisions of the Competition Act; it is also considering what action, if any, it may take in relation to the other payment schemes. Authorities elsewhere in the world are examining the issues in their own jurisdictions. For example, the United States Department of Justice began a court case against MasterCard and Visa last week, and similar issues are being examined by the European Commission.
As for United Kingdom legislation, my officials have already started work on firming up the Government's proposals. More than 40 organisations have been asked for their views on the report's recommendations to establish a licensing regime. Discussions have taken place with a wide range of market players, and more than 15 meetings have been held or are due to be held. That does not include separate discussions with the Bank of England, the Department of Trade and Industry, the Financial Services Authority and the OFT.
The Government recognise the complexity of the issues involved in legislating--there is a great deal of detail to be worked through--and are committed to widespread consultation on the details. The objective is to create a regulatory framework to foster competition which is sufficiently robust to tackle the competition concerns, but not so onerous that it stifles innovation or discourages companies from entering the market to provide payment services.
Commenting on the response to the final report, the hon. Gentleman suggested that the Government might have been seen as backtracking on their commitment to legislate. I assure him that that is not the case. As the hon. Gentleman said, in evidence on his report to the Select Committee on the Treasury, Don Cruickshank said that he was absolutely clear that the Chancellor had made it plain that he would legislate, and that consultation with the banks had already begun.
Let me deal with the recommendations affecting consumers and retail markets. The Government welcome all attempts to improve transparency, to increase the provision of information, and to ensure that consumers have effective avenues for redress. We strongly support the view expressed in the Cruickshank report that, if we are to promote competition, it is essential to educate consumers. Many of the issues involved are the FSA's responsibility, and it has been asked to report on how it intends to respond to the recommendations by the end of this month. We therefore look forward to receiving its response very shortly, and it is intended that that response be published alongside that of the Government.
The report also addressed the important issues of financial exclusion and the provision of basic bank accounts. In his Budget speech, the Chancellor challenged the banks and the Post Office to work together to offer basic banking services for all. Similarly, in April I issued a challenge to all the major banks to have basic accounts up and running by October. In a modern economy in which opportunity is open to all, it is not good enough if banks cannot respond effectively and meet that simple challenge.
I am glad to say that the signs are encouraging. At a recent hearing of the Treasury Committee, the chief executives of three of the high street banks said that they either already had such accounts in operation, or they would be introducing them later this year. Similarly, I understand that the Post Office is working up proposals in that area. We shall be interested to see those in due course.
In relation to small businesses, the report found a concentrated market in which a few players were earning supernormal profits. As I mentioned, those issues have been referred to the Competition Commission for investigation. It has been given 15 months to report on whether a monopoly exists and, if so, whether it operates against the public interest. The investigation is well under way. I understand, for example, that the former members of the banking review team, including Don Cruickshank, have given formal evidence to the inquiry. The Government look forward to receiving the commission's report on that important issue later next year.
The Cruickshank report looked not just at the supply of banking services to small businesses, but at the provision of equity. It contained a number of recommendations on debt
finance and venture capital, many of which were addressed in the Budget. The report also recommended that the Government should make further moves towards a low, simple, capital gains tax regime. In the Budget, we announced that we were cutting capital gains tax to encourage entrepreneurial investment, to reward risk- taking and to promote wider share ownership among employees.The report contained a number of recommendations about increasing transparency in banking supervision, getting the institutional incentives right, delivering effective competition scrutiny and eliminating regulatory distortions. I know from his remarks that those issues are of considerable interest to the hon. Gentleman.
The Government have addressed many of those issues through the Financial Services and Markets Act 2000, which received Royal Assent last week. That is key legislation, which the Cruickshank report acknowledges has brought greater clarity to financial services by introducing a single regulator: the Financial Services Authority. The Act contains specific provisions on promoting consumer understanding and ensuring that the authority takes proper account of competition issues. The banking review was encouraged by the FSA's work to ensure a consistent risk-based approach across different regulated firms. As with the consumer recommendations, the Government hope to receive the FSA's response on the issues raised in the report shortly.
The hon. Gentleman raised a question about bank mergers. Last year, the Department of Trade and Industry issued a consultation paper. It is looking at the issue, particularly the test that should be used in assessing whether a merger should go ahead. That matter is receiving further attention by the Department of Trade and Industry.
On the next steps, the Government have already made considerable progress in implementing the Cruickshank report's recommendations. The report is very detailed; it runs to 334 pages, with seven chapters and nine detailed annexes. The issues are complex. It is important that the Government give all the recommendations proper consideration. Much work has been going on beneath the surface as officials and affected parties get to grips with all those issues.
In line with the recommendations in the report itself, the Government are keen to ensure that their proposals meet the principles of proportionality, non-discrimination, transparency, flexibility and accountability. We hope to make further announcements shortly. I hope that that reassures the hon. Gentleman that the Government are making every effort to respond to the competition problems identified in the Cruickshank report, and that progress is already being made on a number of issues identified in the report.
- Adjourned accordingly at twenty-nine minutes past Ten o'clock.
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