Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 300 - 305)



  300. The Committee happens to have this very recent evidence from Abbey National. Abbey National are of course a player, no doubt they have their own reasons for doing these surveys and for providing this information to the Committee, but at last, above the surface, we have some large-scale, systematic information which is very recent. What it shows is a very poor performance on behalf of two of the major clearers. Do you not think that is cause for concern? Does it not cause you, even from the British Bankers' Association, to have some doubts about whether all this wonderful rhetoric of transparency will be very easily translated into things we can all see and know?
  (Mr Sweeney) It depends entirely what you mean by transparency.

  301. You used the term.
  (Mr Sweeney) Yes, I did. I said earlier that I did not want to see a close link directly between the costs of providing the service and the final price because I just do not believe that is the way markets actually work. What you do need is sufficient transparency, which is what I mean by transparency, for the customer to be able to assess whether they are getting good value and to shop around in a market which then works effectively in precisely the way we were just having described for us in the credit card market. You will find that prices are then driven down because there is more choice in the marketplace. That is the most effective way of doing it. I have no idea, because I am not privy to the relationship which Abbey has with other banks, of the strength of that information, what it means, how it was assessed, what its significance is. In one sense I welcome it because it is part of the market working effectively and the industry saying to itself in terms of best practice that they are doing X but others are doing Y and that is less good than us. I have no problem with it; it is part of the market working.

  302. Mr Hawkins' point is, in the case of credit cards, which is the particular area he is concerned about, that if we are assiduous enough and if we are careful enough and if we keep the right paperwork we can all discover the prices we are being charged for access to credit card services by all the different providers. Your point is a very important one which is that costs and prices are not related at all in this particular market. You are right. So we are still no further towards discovering where this 98.7 per cent of costs actually is, are we?
  (Mr Sweeney) I did not actually say that. What I said was that I would be sad if there were always a ritualistic relationship between cost and pricing. I would submit that it is not a great deal different. At the moment I am trying to buy a car. I have absolutely no idea what it costs to produce a car, so I have absolutely no idea whether I am getting a better product by buying car A as opposed to car B. Actually getting behind pricing mechanisms is extremely difficult in all markets. What you have to do is make sure that there is sufficient transparency for people to judge value for money for them and then the market will bear on the players by driving down prices to the lowest common denominator. That is the way markets work throughout the world and work very effectively. It should be no different in the banking world.

  303. So this is your position: we are in possession of all the information, we have designed a structure in which most of the costs are actually contained within the banking organisations. The bit we can see, which we can identify, which is the transmission cost between the banks, is infinitesimal, it is 1.3 per cent of the costs. Ninety-eight per cent of the costs are hidden within the banks and your attitude is that it is down to us as consumers; we have to do the work, we have to do the comparisons which drive those costs down.
  (Mr Sweeney) No, with respect, I did not say that.

  304. Every time I play back to you a proposition you have advanced yourself, you deny liability. Very interesting.
  (Mr Sweeney) No, every time you play back a proposition I have advanced it is actually slightly different from the proposition I did advance.

  305. Very typical of banks.
  (Mr Sweeney) I would submit that is not accurate either. Let us leave that. The point I am making is that a slavish adherence to the cost of a product in setting a price or determining whether that price is fair is a blind alley. Certainly I do not expect consumers to thrash around trying to work out what the individual cost structures of banks are, any more than I expect to have to thrash about trying to decide what the individual cost of a Ford is or this suit. I have absolutely no idea what it costs to produce this suit. A suit of this quality is produced by a variety of different manufacturers and what I need to be able to know is what the price of each of those suits is and be sure that they are of the same quality so that I can determine which one I can buy. That is the industry obligation. That is what the FSA is working on. That is what I am personally committed to. That is what the BBA is committed to; transparency in that sense. It is for people like Cruickshank and the Competition Commission and others to look then at the broad structure and see whether that transparency produces a price for the customer which is fair in relation to cost. That seems to me perfectly proper. Cruickshank has given one answer. I do not share all of it. The Competition Commission is looking at it in another part of the marketplace and that is absolutely fine. That is not of concern to the individual consumer, nor should it be of concern, but it is also not the be-all and end-all of an effective competitive marketplace. That is my point.

  Chairman: Thank you very much for your answers and thank you very much for coming.

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