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Dr. Vincent Cable (Twickenham): I welcome the Chancellor's statement, and the Government's commitment to prompt and full implementation of the report's recommendations.

Does the Chancellor agree that the report fully vindicates the findings of the Cruickshank report, published two years ago, despite their rubbishing by the banks themselves? Does he agree with the central conclusion of that report that there are profound competition problems in this sector as a result of complex monopoly, the leading clearers' control of the central clearing system and, indeed, the banks' continued enjoyment of regulatory privileges—for instance, the fact that the Government are their lender of last resort? Does the Chancellor accept that basic analysis?

Does the Chancellor also accept that his cautious approach—it has taken two years, since the publication of the Cruickshank report, to reach the conclusions—

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has meant that the small business sector had roughly £1.5 billion of excess profits taken out of it by the banking system? That has swamped the positive incentives that he put back into small business, such as £200 million for the small business research and development tax credit. As the Office of Fair Trading report rejects the idea of a levy on banks, what measures does he propose in order to retrieve some of the £1.5 billion excess profit of the past two years and to put it back into small business?

The Cruickshank analysis has been vindicated. It suggested that there was up to £5 billion of excess profits altogether, much of it taken from personal consumers as well as small business. In light of that, when do the Government propose to implement their long-promised recommendations to introduce Paycom, a payments regulator? Ministers have told me in response to written and oral questions and Adjournment debates for more than two years that that is imminent, but it has yet to materialise.

Mr. Brown: I am grateful to the hon. Gentleman, who has taken a long-standing interest in such matters. I am also grateful to him for dealing with the specifics, unlike the shadow Chancellor.

First, Ms DeAnne Julius's work on the banking code is moving ahead as a result of the Cruickshank report. Secondly, we are committed to opening up the money transmission services. That is Government policy. Thirdly, however, we reject a windfall tax, as does the Competition Commission. The previous Conservative Government imposed the only windfall tax on banks, and that was for the same reason—to deal with the failure of banks to pay interest on current accounts at a time of high interest rates in the early 1980s.

We believe that because the injury is to small businesses themselves, the best thing is to reduce costs for small businesses. That is why the option for the transitional period is either to pay a rate of interest on current accounts or to provide free banking services for the money transmission services that are involved. Both of those could be worth substantial amounts of money to a small business if properly implemented, and it is now for the Director General of Fair Trading to work on that.

Our proposals are directed at the problem, which is that small businesses must get a better deal. As I said, I hope that we can make progress quickly on the recommendations. Although the Competition Commission says that there are six months in which the undertakings can be discussed, we hope—and I believe—that the Director General of Fair Trading also hopes that we can move forward sooner.

As for incentives for small business, the hon. Gentleman will have noted my statements in the past few weeks in which I have made it clear that we are determined to do more to help small businesses to amass the funds to invest and to be able to seek equity, to start exporting and to hire new employees. That is our aim, and it will be advanced by measures in the Budget.

Mr. James Plaskitt (Warwick and Leamington): The 5,000 small businesses in my constituency will welcome the Chancellor's statement. The commission's report is a serious document. It basically finds the banks guilty of

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monopoly exploitation. In view of that, does my right hon. Friend agree that the banks should respond quickly to the findings? They should at least do something about charges and current account terms in less than the six months envisaged by the report. That would make a start on repaying more than £700 million-worth of overcharges.

Mr. Brown: I am grateful to my hon. Friend, who is also a member of the Treasury Committee. I hope that its work on this matter will yield results.

My hon. Friend is right to say that we should make progress as quickly as possible. All hon. Members know that we are dealing with a long-standing grievance and, indeed, a long-standing problem; the evidence is that action should be taken. However, I stress to him and the 5,000 businesses operating in his constituency that will benefit from the measures announced today that a healthy and profitable banking sector is in everyone's interests. There will be periods in the economic cycle in which banks should and will have to earn above average profits. Where those arise from the absence of competition, we should act. Therefore, I hope that all the recommendations that are central to the improvement of competition can be followed through.

On the transitional remedy, my hon. Friend will note that the Director General of the British Chambers of Commerce said only a few days ago:

Our remedy is more flexible than that, but it is clear that many of the business organisations are demanding action, and demanding action now. We can be both pro profit for banks and pro competition.

Sir Teddy Taylor (Rochford and Southend, East): In making such major changes, will the Chancellor bear in mind the danger of undermining one of our most successful institutions, which has high standards that are greatly appreciated by people all over the world? Does he accept that, with regard to small businesses, the banks have to carry a massive burden of bad debts and failed businesses, and that it is only fair to take that into account? What are the figures?

On competition, does the right hon. Gentleman accept that the Clydesdale bank in Scotland—happily owned by Australians—pays interest on its current accounts to people like me? Is it not unfair to undermine the banks by talking only about the costs and not the massive burdens? Will he give a figure on the banks' bad debts and failed businesses?

Mr. Brown: I am grateful to the hon. Gentleman, who has taken an interest in these matters at a British and European level for some time. He seems to have a more intimate knowledge of the banking system than the shadow Chancellor.

The hon. Gentleman rightly raises the assessment of the methodology that was used by the Competition Commission, and what allowance has been made for the large amount of bad debts that have to be written off by the banks. The Competition Commission also took into account in its methodology the effects of the economic cycle in which, at certain points, higher than average

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profits can be expected to be earned. There is also the issue of the allowance made for intangible assets by the methodology adopted by the Competition Commission.

We have considered these matters carefully, as has the Competition Commission. It is because the questions raised by the hon. Gentleman are rightly raised by members of the public and the banks that we asked Sir Bryan Carsberg, a renowned international expert on these issues, to look at the methodology. The notation with the documentation that the House has shows that he has expressed his confidence in the general approach taken. I believe that people will reach exactly the conclusion that we reached when they look at the figures that are available.

On the general point about banks, of course the hon. Gentleman is absolutely right. Britain wants and should be proud of a healthy, profitable banking sector, but it cannot be at the expense of little competition or a complex monopoly. When that is the case, it is our duty to take action. The hon. Gentleman speaks from the Back Benches and has done for these past 20 years; I think that he will agree that it is sad that when this problem was put to Conservative Ministers in the 1990s, they did nothing about it.

Mr. Barry Gardiner (Brent, North): For 10 years during that period, and before I entered this House, I ran a business in the City and suffered exactly the sort of banking disservice that was provided to small and medium-sized enterprises such as mine. I welcome this report with the enthusiasm of somebody who suffered under those practices for so long.

My right hon. Friend referred to radical measures which have been discussed and considered in the report. In particular, I would have urged him to pursue the windfall tax, but I take the reasons and the rationale behind his decision not to pursue that course and go out of line with the regulator's suggestions. However, if there is any dilatoriness on the part of the banks in implementing the recommendations, sorting out their service to the public and repaying the extra profits that they have made through an improvement of service, I urge my right hon. Friend to hold that option up his sleeve.

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