Select Committee on Treasury Appendices to the Minutes of Evidence


Memorandum by UNIFI


  The financial services sector is at present undergoing rapid and far reaching restructuring. Many of these changes may serve to reduce access, choice and competition.

  UNIFI recognises the need for greater intervention in the matter of mergers in the banking sector.

  Competition needs to be defined in a broad way which includes a social dimension, including access to services and the delivery of better value services.

  UNIFI does not support major mergers that cannot be shown to be in the interests of all the key stakeholders: employees, customers and communities, as well as shareholders.

  Many of the "new" banks are closely related to the "old" banks, either as joint ventures with supermarkets or as internet portals for established institutions.

  Greater consideration needs to be given to the consequences of branch closures.

  Although new forms of financial provision can present exciting opportunities, some of the technological developments said to offset the effect of branch closures may not adequately serve some customers' needs.

  UNIFI endorses a review of the Financial Services and Markets Act. Such a review should allow for all affected parties to contribute.


  1.  UNIFI is a TUC affiliated trade union representing some 165,000 workers across the finance sector. The Union represents staff in all grades and all occupations, not only in the major English and Scottish banks, but also in investment banks, the Bank of England, insurance companies, building societies, finance houses and business services companies. UNIFI can be contacted via Ed Sweeney, General Secretary, UNIFI, Sheffield House, 1b Amity Grove, London SW20 0LG.

  2.  The financial services sector is at present undergoing rapid and far reaching restructuring. Many of these changes, such as mergers and the curtailment of branch networks, have an impact upon competition and access to services within the sector, often with a reduction of rights, choice and services to customers of all kinds. There are structural changes within the finance sector that are reducing access, choice and competition.

  3.  UNIFI is most concerned with the impact of mergers in the sector, the continued social exclusion from financial services of certain sectors of society, the issue of access to new technology and the benefits and choice new technology presents, and the concentration of the financial services market.

  4.  UNIFI would welcome the opportunity to give oral evidence on the issue of competition in the finance sector.


  5.  In February 1999 the Banking, Insurance and Finance Union (BIFU)—one of the founding unions of UNIFI—made a submission to Don Cruickshank's Banking Review on its initial consultation. UNIFI welcomes the opportunity to submit evidence on this occasion, especially given that there has been intensification of merger activity of late which has the potential to reduce competition, choice and customer service in the sector.

  6.  UNIFI acknowledges the important role of effective competition in promoting economic growth and improving customer service. However, concentration on competition should not be so narrow as to detract from a proper consideration of other key issues.

  7.  UNIFI has warned that staff and customers could lose out if competition in the sector is further eroded. We would in particular note with concern the impact of mergers in the sector, the reduction of access, choice and service as a result of branch closures and staff reductions, and the needs of the socially and financially excluded.

  8.  Though there have been claims of increased competition in the finance sector of late, this does not appear to have improved the position of customers. An example of this is the average interest paid on instant access accounts. The average savings rates have declined while the average mortgage rates have increased in the last year. In 1999, the average savings rate on an instant access account was 2.6 per cent. This has fallen to 2.15 per cent in 2001, increasing on average the profit to banks from 5.1 per cent to 5.59 per cent (The Mail, p 31, 11 January 2001). In 2001 average mortgage rates were 7.74 per cent, but they were 7.7 per cent in 1999.

  9.  UNIFI suggests that at a structural level customers are getting a raw deal (there are less banks, with fewer branches, with less staff to serve them), and that the product of this reduction in choice is a poorer deal for customers (less choice, reduced service, longer waiting times and smaller returns).

  10.  Some of the recommendations in the Cruickshank Review have already been accepted by the Government, eg a monopoly reference of SME banking services. UNIFI would like to see action taken on a number of the other recommendations made in the report, in particular relating to the issues of mergers and social exclusion.


  11.  UNIFI would highlight the need for intervention in the matter of mergers to sustain competition in the sector. We also note that though it is alleged that there are new avenues of competition in the sector, such as new supermarket banks and internet banking, these are very often closely linked to the established banks and are not a substitute for regulation of the market.

  12.  The erosion of competition via mergers was something the Cruickshank Review noted clearly, and it states that banks should be exposed to full competition law without special exemptions. In addition, the Report also states that further action is necessary to prevent anti-competitive mergers.

  13.  There is already a body of independent research[9] that shows that mergers often do not deliver shareholder or customer benefit but instead are motivated by corporate and city manoeuvring.

  14.  Competition needs to be defined in a broad way, which includes a social dimension (including access to services and the delivery of better value services) not just an economic one.

  15.  The Cruickshank Review noted that in general neither personal, nor small business, customers are getting a fair deal from banks. Citing ineffective competition as the main reason Cruickshank concluded: "further action is necessary in particular to prevent anti-competitive mergers . . . relatively few mergers among the top 10 banks in the UK could presently be argued to be in the public interest."

  16.  Moreover, it also states that "Banks should be obliged to demonstrate the public interest merits of any merger", and even more interestingly states that there is a need to "refer all mergers between financial suppliers to the Competition Commission for investigation if the merging entities have material share of the market" but there may need to be definition of financial supplier and material share. (Section 30 part (a) p.xiii).

  17.  The Report also states that the monopoly investigation in respect of SMEs could recommend "elimination of any restrictive covenants on the disposal or closure of branches and the release or transfer of skilled staff" (para 5.82, page 164).

  18.  Competition and choice are being reduced through mergers. However, it should not be assumed either that new banks will offer new choices. Though the customer apparently has choice in financial matters, in reality that choice is being eroded as banks merge and new banks are developed. But often the "new" banks are closely related to the "old" banks. For example, the banking sections of Tesco are linked to the Royal Bank of Scotland, Sainsbury Bank is linked to Bank of Scotland, Asda to Lloyds TSB and Safeway to Abbey National. As is noted later, many of the new internet banks are just internet portals for the already established and dominant big banks.

  19.  There is therefore a need for greater intervention in merger and competition issues. UNIFI has called for a referral to the Competition Commission in respect of the proposed bids for Abbey National by Lloyds TSB and Bank of Scotland on the grounds of the impact on jobs, branches and customer service. We also expressed concerns in respect of the takeover of NatWest.

  20.  UNIFI does not support major mergers that cannot be shown to be in the interests of all the key stakeholders: employees, customers and communities, as well as shareholders.


  21.  The Cruickshank Review also promoted the provision of basic banking services, and this is welcome and something that UNIFI has promoted for some time. We have also recently seen a number of major banks commit themselves to providing basic bank accounts by the end of the year, no doubt as a result of political pressure.

  22.  The Government have now produced plans to develop this, and these are welcomed, though UNIFI notes the initial opposition of the British Bankers Association to the scheme proposed by the Government.

  23.  UNIFI would also draw attention to the issue of the reduction of banking branch networks, and the assumption that new technology will increase access to and choice of financial providers. Though new forms of financial provision can present exciting opportunities and channels for delivery are changing, some of the technological developments said to offset the effect of branch closures may not yet adequately serve some customers needs. For example, the substitution of internet banking for rural branches is still some way off.

  24.  Branch networks have continued to shrink. Though it is claimed that there is more choice, there are now less branches and less staff through which to access those services. HSBC for example reduced its branch network by nearly 20 per cent between 1989 and 1999, NatWest by 43 per cent over the same period, and Barclays by 28 per cent. Overall, the bank and building society branch network has fallen from 21,300 to 14,780 between 1988 and 1998, a drop of 30 per cent.

  25.  Consideration needs to be given to the consequences of branch closures beyond improving the bank's balance sheet. To quote an Office of Fair Trading report published in January 1999: " to the extent that banks present social benefits, there could be an argument for some public policy response to bank closures".

  26.  The re-organisation of the bank branch structure has not extended access and choice for all. New technological services are frequently not available to the already financially excluded.


  27.  The Cruickshank Review calls for special regard to be given to e-commerce developments. There are particular concerns about digital signatures, the VAT treatment of financial services and money laundering requirements.

  28.  UNIFI suggests that the development of technology in the finance sector is not at present a solution to either the problem of competition or social exclusion.

  29.  It is often stated that entry barriers to the industry are falling and that new internet banking facilities offer the customer more and more choice. However, as already indicated, many of these new banks are merely off-shoots of already established financial companies, or are internet arms of the big banks. Moreover, the new banks in the sector, such as the supermarket banks, are also very closely linked to the "big-four" banks. For example, the internet bank Egg is a subsidiary of an already established financial supplier, Prudential, IF is part of the Halifax Group, and Smile is part of the Co-op Bank. New technology does not intrinsically create new banks, but can create new avenues by which the large banks can further dominate the market.

  30.  These new technology banks also exclude many members of society, both by cherry picking the customers from which they can make a profit, and by using delivery channels that are only available to a relatively affluent (and young) section of society. Internet and phone banking by definition rely on access to new technology, and can therefore exclude many people.


  31.  UNIFI would endorse a review of the Financial Services and Markets Act. Such a review should allow for all affected parties to contribute. We should welcome the provision of better information enabling informed choice and greater understanding. More needs to be done to bridge the information gap between the industry and much of the population. However, information needs to be appropriate. Education also has a role to play here.


  32.  UNIFI also welcomes the suggestion in the Cruickshank Report of the establishment of a payment systems commission. The report suggests that competition law at present allows for abuse by firms or groups of firms. The report therefore suggests the creation of rules covering network industries such as payment systems. These are to be developed via an independent commission that will be established by legislation, with a view to delivering price transparency, good governance, non-discriminatory access, and fair trading.


  33.  There is a great danger that there is developing a concentration of power, resources and ownership in the finance industry, that will have detrimental effects upon employees, customers and communities. Competition would be good for the finance industry, but UNIFI would suggest that intervention is needed to preserve what competition there is and to ensure and increase competition for the future.

January 2001

9   See, for example, On the Performance of Bank Mergers-Some Propositions and Policy Implications by Professor Hans Schenk. Back

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