Select Committee on Treasury Minutes of Evidence

Memorandum submitted by UNIFI


  UNIFI is a TUC-affiliated trade union representing some 160,000 workers across the finance sector. This submission responds to the Treasury Select Committee's request for evidence into its inquiry into banking. A summary of the key points made is presented below:

—  UNIFI acknowledges the role of effective competition, but wishes to ensure that enterprise is combined with fairness and transparency.

—  We are concerned that banks may use the remedies proposed in the recent Competition Commission Report as the rationale to further cut costs, staff and branches. In the last five years thousands of jobs have been lost in banking and the branch network has contracted nearly 20 per cent.

—  The banks' response to the proposed remedies needs to be monitored to ensure that it does not lead to the detriment of customer service, access to financial services or employment relations.

—  There needs to be a broader and more sensitive test for the approval of mergers. The recently published Enterprise Bill causes some problems in this regard in that merger policy will be governed solely by competition concerns.

—  There has been a growth in the range of distribution channels and these present exciting opportunities. However, more consideration needs to be given to the effects of branch closures.

—  Initiatives such as the sharing of bank branches and Universal Banking Services are welcome. However, they will need to be evaluated carefully.

—  If the finance industry is not capable of providing access to affordable and appropriate products and services in the current regulatory environment, the Government should address how regulatory policy can best encourage it to do so.

—  Community Reinvestment Act type legislation such as that used in the USA should be considered as a policy option. Consideration should also be given to the potential for a "Universal Service Obligation" to be placed on financial institutions for the provision of basic financial services.

—  There needs to be greater recognition of the impact that employment practices can have on productivity and profit. The way employees are treated at work has clear consequences for the quality of service delivered to customers.

—  There needs to be a forum to allow examination of the inter-relationship between finance sector regulation and employment practices and the impact for staff and customer service.


  1.  UNIFI is a TUC-affiliated trade union representing some 160,000 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 John Earls, Joint Head of Research, UNIFI, Sheffield House, 1b Amity Grove, Raynes Park, London SW20 0LG or

  2.  We welcome the opportunity to give evidence to the Committee on banking services following the Competition Commission's recent report concerning SMEs and the Treasury Committee's earlier report on Banking and the Consumer. We particularly welcome the opportunity to inform the proceedings from the perspective of employees in the industry.

3.  UNIFI acknowledges the role of effective competition in promoting economic growth and improving customer service. However, we also have concerns that too narrow a focus detracts from proper consideration of other important issues. We wish to ensure that enterprise is combined with fairness and transparency.


4.  The recent Competition Commission Report into The Supply of Banking Services to Small and Medium-sized Enterprises finds that "the four largest clearing groups—Barclays, HSBC, Lloyds TSB and RBSG—are together charging excessive prices (including interest forgone on non-interest-bearing current accounts) and therefore making excessive profits, in England and Wales, of about £725 million a year over the last three years with adverse effects on SMEs or their customers".[5] Remedies are proposed to address this issue and these have been accepted by the Chancellor of the Exchequer and Secretary of State for Trade and Industry.

5.  UNIFI is concerned that the banks named in the report may use the proposed remedies, including the introduction of current account interest and free banking, as the rationale to cut costs, staff and branches, and to increase charges elsewhere to customers.

6.  It is important, we feel, that the situation is monitored so that while the issue of excess profits is addressed, this does not lead to the detriment of customer service, access to financial services or employment relations.

7.  We note that the Forum of Private Business in its Survey 2000 Report on Private Businesses and Their Banks reports a fall in the performance of the banks as perceived by their smaller business customers[6]. The Forum finds that "Bank cost reductions combined with access to information and communication technology (ICT) have prompted structural changes that appear to have caused the reduction in business satisfaction'' (Executive Summary). In addition, the report finds that ``bank restructuring and greater centralisation have made many customers feel disengaged and more remote from the decision making process".

8.  As the major specialist finance sector trade union, we have direct experience of the detrimental effect that rationalisation and restructuring, when poorly managed, can have on employee performance and customer service. We explore this further in paragraphs 40-44 of this submission.

9.  We are also concerned that the relentless concentration on "shareholder value" in the City leads to short-termism in business planning and activity. One manifestation of this can be found in takeover and merger activity.


10.  We note that the Competition Commission found there to be a considerable degree of market concentration, and in particular that 90 per cent of small businesses used the "big four" banks for their banking and financial services. There is also significant density in terms of current accounts, where again the big four hold in the region of 75 per cent of business.


FRS Data
CC Data: All PCAs
CC Data: Full PCAs
"Big Four" banks
All traditional banks

(Source: Competition Commission's report on the proposed merger between Lloyds TSB and Abbey National, 2001. NB All PCAs refer to accounts offering ATM payment in and out, cheque book, debit card, ATM access. FRS refers to research carried out by FRS, and CC to the Competition Commission's own research).

11.  We have concerns about any future concentration of the market, especially through mergers and take-overs. We also note the findings of the Cruickshank Review of Banking Services which concluded that "further action is necessary in particular to prevent anti-competitive merger" and that "relatively few mergers among the top ten banks in the UK could presently be argued to be in the public interest".[7] UNIFI concurs with this view and we supported the referral of the proposed merger between Lloyds-TSB and Abbey National.

12.  UNIFI contends that there is a social dimension to mergers which needs to be acknowledged. Mergers have an impact on employees, customers, communities and regions, and therefore it is appropriate that the impact a merger has upon these be taken into consideration when a merger is proposed. UNIFI would suggest that a companion test to the competition test be developed which considers the social impact of a merger and what the impact of the merger will be on the efficiency and development of a company.

13.  UNIFI would like the rationale for a merger to be scrutinised for the economic and social benefits the merger will produce as there is a growing body of evidence that suggests that mergers do not deliver the benefits claimed of them. Mark Sirower in his book The Synergy Trap studied 168 mergers between 1979 and 1990 and concluded that 67 per cent of mergers actually destroyed shareholder value[8]. More recently, KPMG have noted that only 17 per cent of all international mergers added value to the combined company, while as many as 53 per cent actually destroyed shareholder value.[9]

14.  Professor Hans Schenk at Tilburg University has suggested that between 70 per cent and 85 per cent of banking mergers in Europe fail. He finds that there is generally no change in profitability (if anything, there is a decrease), returns on equity and investment decrease, productivity trails, and especially large banks do not improve efficiency even with cost-cutting.[10]

15.  We accept that competition is a key factor in the analysis of economic development, and in particular of mergers regulation. However, we suggest that competition becomes a more meaningful measure if it is placed alongside other factors which address the concerns of a wider range of stakeholders.

16.  There needs to be a broader and more sensitive test for the approval of mergers. We note that the Competition Commission Report finds that Royal Bank of Scotland Group, formed by the merger of Royal Bank of Scotland and NatWest, "itself has a scale monopoly situation in that it supplies over 25 per cent of the reference services" and that the Commission "found these practices to be against the public interest"[11]. However, this was a merger approved on competition grounds just three years ago.

  17.  We would like to express concern here about the almost exclusive focus on competition in respect of the regulation of mergers in the recently published Enterprise Bill. The policy on mergers will be governed solely by the effect of a particular transaction on competition, rather than, as at present, the effect on "the public interest" (which whilst emphasising effective competition, can also include effects on employment, regional policy, etc). Ministers will have reserve powers to intervene only on those merger cases affecting national security/defence, plus other "exceptional" cases, subject to parliamentary approval.

  18.  Our concern is that no consideration will be given to the "social" implications of mergers. We would argue that the consequences of mergers do sometimes need to be considered beyond the "economic" and that the proposed reforms do not allow a mechanism for that consideration.

  19.  Consideration could be given as to whether the new "super-complainant" procedure (that will enable certain consumer organisations to have the right to compel initial investigation by the OFT into specific markets) should be extended to other third parties such as trade unions.


  20.  There have been thousands of job losses in the banking sector over recent years. The British Bankers Association report a reduction in employment in retail banks of 11,300 in the year 2000 (although this is said to have been partly offset by increases in overseas banks and smaller British banks).[12]

  21.  Of the "big four" banks only HSBC increased UK employment in 2000. Royal Bank of Scotland Group's Report and Accounts for 2000 report that the number of staff had been reduced by 13,000 (18,000 job losses are planned by 2003). Lloyds-TSB in its Annual Report and Accounts 2000 states "since the merger in 1995 there has been an underlying reduction of 20,076 staff."


Abbey National
Alliance & Leicester
Bank of Scotland
Lloyds TSB
Northern Rock
Royal Bank of Scotland
All BBA Retail Banks
Source: British Bankers' Association Abstract of Banking Statistics 2001, Table 5.01 for headcount staff employed at end of December 2000, including part-time staff.

  22.  The rate of bank branch closures has eased over recent years, but the bank and building society branch network has contracted by over 25 per cent in the last decade. Between 1995 and 2000 the UK bank branch network has lost over 2,500 branches, a fall of 19 per cent.


Abbey National (includes National and Provincial after 1996)
Alliance and Leicester
Bank of Scotland
Halifax (includes Birmingham and Midshires after 1999)
Lloyds TSB
Royal Bank of Scotland
Northern Rock
Total (BBA Major British Banking Groups)
Source: British Bankers' Association Abstract of Banking Statistics 2001, page 53, Table 5.02.

  23.  It is worth recalling that in his Annual Report 1995-1996 the Banking Ombudsman stated that some of the worst cases of banking maladministration stemmed from attempts to achieve greater efficiency. He asked whether "some blame (can) be attributed to the closure of smaller branches . . . to staff reductions and to other moves towards `rationalisation'?"[13] This risk has not disappeared.

24.  The Competition Commission Report identifies the branch network as vital to small business as an entry point for finance and for the running of their businesses. The report also notes that small businesses now play a significant part in the economy as a whole, and we would suggest that to see further branch closure programmes could have a harmful impact upon the development of the sector.

25.  We would further add that local branches are vital to communities and to customers wishing to have access to financial services. We note that the Office of Fair Trading in its report into Vulnerable Consumers and Financial Services published in 1999 stated that "To the extent that banks present social benefits, there could be an argument for some public policy response to bank closures."[14]


  26.  The Treasury Committee's Report on Banking and the Consumer raises the issue of financial inclusion. UNIFI has been interested in this issue for some time, believing that access to basic financial services has increasingly become an essential part of social well-being in a modern economy.


27.  We acknowledge that financial exclusion is not just about branch closures and that there has been a fantastic growth in the range of distribution channels, not least those brought about by technological developments. But more consideration needs to be given to the effects that the closure of local branches can have on customers and local communities. A report into Social Exclusion in Wales published by the House of Commons Welsh Affairs Committee in November 2000 (and to which UNIFI gave evidence) recommended that the Government require banks to conduct, and publish, social impact assessments before closing branches.[15]

28.  The National Consumer Council has also expressed concern about the way in which bank branches are closed arguing that "Full consultation, rather than simple notification, should take place, to give consumers the opportunity to highlight significant difficulties".[16] They go on to argue that the "requirement to consult should be extended beyond full closures to include substantial reductions in service, such as opening for fewer days.

29.  We believe that what customers want is choice in the form of access to a variety of channels depending on their personal circumstances and the type of transaction they wish to carry out.


  30.  The Government has accepted the Competition Commission's recommendation that banks examine the scope for the sharing of branches.

31.  We also note that at the start of this year the British Bankers Association launched a "Shared Banking Services" pilot scheme involving the "big four" banks. Under the scheme personal customers and selected small business customers of the participating banks are able to pay in, make withdrawals and exchange notes and coin through a competitor bank's branch in 10 locations where there is only a single bank branch and no others within approximately five miles.

32.  The "shared branch" proposal is a welcome initiative. However, it will need to be evaluated carefully in respect of its promotion and implementation. Issues of particular concern include the extent of initial consultation, the training and resources available to deal with extra workload and systems, and the potential for the shared branch arrangement to be used as a licence to close more branches.


33.  As with the "shared branch" project, the Universal Banking proposal is also a potentially valuable initiative. Self evidently, access to financial services through a post office is better than no access at all. But again, proper evaluation is required in order to ascertain its effectiveness. Many of our concerns in respect of training and resources and the potential to precipitate further closures also apply here. In addition:

—  The post office network is itself under threat;

—  Will the accumulation of customers from the participating banks result in increased congestion, queuing and lack of privacy?

—  What are the security implications of so much community cash handling being focused in one vulnerable shop?

34.  We think there is also an issue here about what role other banks will play in these projects and the wider financial exclusion debate. Whilst we can be critical of the established banks, it is only fair to also ask about the "new entrants", those without a branch structure to maintain, who we know "cherry pick" the more affluent customers. What role will they play in addressing what is an industry problem?


  35.  Financial services providers need to be encouraged to take greater responsibility for providing services to the whole community. There needs to be a review of the mechanisms by which this may be achieved.

36.  There may be scope in the industry Codes of Practice and recene reviews in the Banking Code have made some advances. However, we would share some of the concerns outlined by the National Consumer Council in its response to the independent review of the banking code.[17] In particular, the fact that coverage is not universal, whether there should be a statutory underpinning for the Code, and more effective monitoring and compliance processes.

37.  However, if the industry is not capable of providing access to affordable and appropriate products in the current regulatory environment, the Government should address how regulatory policy can best encourage it to do so.

38.  In the United States of America, the 1977 Community Reinvestment Act (CRA) encourages financial institutions to ``fulfil their continuing and affirmative obligation to meet the credit needs of their communities''. The Act requires the regular evaluation of the community lending performance of financial institutions and for this performance to be taken into account when considering merger, acquisition or branch relocation proposals.

39.  We note that in a Report to the Chancellor in October 2000 the Social Investment Task Force also proposed greater disclosure of individual bank lending activities in under-invested communities.[18] If voluntary disclosure did not come about quickly, it recommended that the Government introduce CRA type legislation. In addition, it said that such legislation should not be limited to banks but should address other financial institutions providing services to individuals and small businesses.

40.  Consideration should also be given to the potential for a "Universal Service Obligation" to be placed on financial institutions for the provision of basic financial services.


41.  UNIFI supports the drive towards a competitive and efficient industry. Whilst initiatives in technology, processes and products clearly have an important role to play, all too often not enough consideration is given to the huge impact that people-based practices can have on productivity and profit.

42.  The way employees are treated at work has clear consequences for the quality of service they are able to deliver to customers.

43.  Results from the UNIFI Member's Survey conducted by Jeremy Waddington at UMIST highlight some important areas in this regard.[19] 81 per cent of members said that their job was stressful. 50 per cent of respondents work at least one hour's unpaid overtime per week. 20 per cent do five hours or more.

44.  Interestingly, where employers were positively involved with the union members reported less stress, felt that their skills were better utilised, that there was opportunity for the future development of new skills, and that there were opportunities for advancement in their company.

45.  Productive organisations are those that engage properly with their staff. It is also our experience that work re-organisation is most likely to succeed when it allows for the participation of affected employees and their representatives.


46.  We would also like to take this opportunity to raise the issue of finance industry regulation and employment practices. We understand that employment relations is not within the remit of the Financial Services Authority. However, we have experienced occasions when the strict demarcation between the two has created a vacuum whereby it is very difficult to pursue issues or identify accountability. Employers justify practices on the basis that the regulator requires them and the regulator does not get involved in employment relations issues.

47.  Among the regulatory issues that impact on the work environment of the industry's employees and have implications for consumer protection are references, disciplinary policy and remuneration systems.

48.  The Financial Services Authority already has "practitioner" and "consumer" panels. There needs to be a forum to allow examination of the inter-relationship between regulation and employment practices and the impact for staff and customer service.


49.  UNIFI acknowledges the role of effective competition, but wishes to ensure that enterprise is combined with fairness. We want a banking sector that is successful and responsible in the way that it deals with all its key stakeholders, including its employees. We want to work with all appropriate partners towards this goal.

April 2002

5   (Report summary, para. 1.8). Back

6   Forum of Private Business Survey 2000 Report on Private Businesses and Their Banks: Executive Summary. Back

7   Chapter 2, Section 2.157, and Executive Summary xiii). Back

8   Mark L. Sirower The Synergy Trap-How Companies Lose The Acquisition Game (Free Press, 1997). Back

9   KPMG Unlocking Shareholder Value, the Keys to Success, reported on BBC News Business website, November 1999. Back

10   On the Performance of Banking Mergers. Some Propositions and Policy Implications, The impact of mergers and acquisitions in Finance on workers, consumers and shareholders, Background Report, Brussels/Geneva: UNI-Europa, 2000, pp. 24-43. (English abstract)(French abstract) UNI2000FrenchAbstr.html. Back

11   Report Summary, para. 1.9 Back

12   British Bankers Association Banking Business: An Abstract of Banking Statistics, Volume 18 2001 page 50. Back

13   Banking Ombudsman Scheme Annual Report 1995-96, page 15. Back

14   Office of Fair Trading Report into Vulnerable Consumers and Financial Services, 1999, para. 314, page 23. Back

15   Welsh Affairs Committee Social Exclusion in Wales, 2000, para. 79, page xxii. Back

16   National Consumer Council Response to the Independent Review of the Banking Code, February 2002, page 4. Back

17   National Consumer Council Response to Independent Review of Banking Code, 2002. Back

18   Enterprising Communities: Wealth Beyond Welfare, A Report to the Chancellor of the Exchequer from the Social Investment Task Force, October 2000. Back

19   UNIFI Members Survey 2001 Report. Back

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