Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 380 - 399)




  380. Transparency and clarity are the buzz words here. Could I look at the issue of complex monopoly situation? Under the 1973 Fair Trading Act three conditions have to be met. The Competition Commission said that the eight largest clearing banks, including yourselves, as a group were providing more than 25 per cent of services, indeed the Big Four were providing 86 per cent. The second issue is that you are so conducting your affairs as to restrict or distort competition. The third one is to show that restriction or distortion is working against the public interest. The Competition Commission have been very clear in saying that you as a group have been involved in this complex monopoly situation. Do you accept their conclusions?
  (Mr Harley) I do not think that included us, as I read the report.

  381. It says the eight largest clearing banks in which you are included.
  (Mr Harley) I think we were number nine on the list. As I understand it, we were not included in the conclusions.
  (Mr Targett) That is my understanding as well. I think one of the conclusions of the report was that we were not found to be charging excessive prices in the areas in which we operate so I do not think we got caught up in that.
  (Mr Crosby) In the context of the SMEs Halifax was excluded from that consideration because we were not in that marketplace, but Bank of Scotland was included. It is important to emphasise that the conclusion of the Commission was that in Scotland there were no competition failings which required remedy. That was primarily because of the traditionally fierce competition which takes place between the three main Scottish banks.

  382. I shall just refer to the Competition Commission's report, volume 1, page 128 which says, "We have therefore concluded that by virtue of the provisions of section 7.1 (c) of the Act, Alliance and Leicester Bank, Girobank, AIB, Abbey National, Bank of Ireland, Bank of Scotland, Barclays Bank, Clydesdale, the Co-op Bank, HSBC, Lloyds TSB, Northern, RBS, National Westminster and Ulster comprise a group of persons who . . .". So you are included in it. What is your answer? Do you accept the Competition Commission's view that you are engaged in a complex monopoly?
  (Mr Harley) We are not subject to the remedies, so to that extent I accept what you are saying. We, Abbey National, have not been asked to apply the remedies.

  383. I find it surprising that you do not know you are included in that. It is very clear.
  (Mr Harley) I apologise for my misunderstanding. My response was meant to indicate that we are not subject to the remedies, therefore we are not being asked to change our behaviour. That was the only point I was trying to make and I do apologise if I misunderstood you.

  384. It is a complex monopoly and if you are a complex monopoly, you have to change behaviour. Let us get it on the record. You are now included and you did not realise you were included. Now that you are included, do you accept the finding that you engage in this complex monopoly? Yes or no. If you cannot answer today, will you put it in writing to us? It just seems amazing that you did not know that.
  (Mr Crosby) What you said confirmed my position which was that Halifax were not included, were not in that list. The Bank of Scotland is included. They are very clear and there are no price regulation remedies in Scotland because it was concluded that there was adequate competition. To the extent that there are remedies in Scotland, they are around portability and transparency and we are 100 per cent behind those. In fact we have taken an initiative to implement a number of those. To that extent and at that level, yes, we accept the findings of the Commission.

  385. You would accept the findings of the Commission.
  (Mr Harley) May I just make the point again which I was trying to make earlier. As I understand it, there were 10 practices against the public interest pursued by the four main clearers and four others, which excluded Abbey National. With that on the table, then of course I accept the conclusions of the Commission.

  386. We are looking for clarity and transparency here. Give it to us.
  (Mr Targett) My answer is similar. One of our banks, Clydesdale, operates in Scotland and there are the same issues. In terms of the behaviour remedies, we support them and are actively working with them.

  Chairman: So you all accept the Competition Commission's charge.

Mr Beard

  387. When you were answering questions earlier you said that you objected to price control because it limited competition, it prevented you being distinct from the Big Four banks. Is that correct?
  (Mr Crosby) Unhelpful at the margin.

  388. What level of interest do you pay on the current accounts of small- and medium-sized businesses?
  (Mr Crosby) We pay 2 per cent below base rate as a standard on an average balance across our business banking customers. It is about £10,000.

  389. You pay more for business accounts than you do for personal accounts.
  (Mr Crosby) No, it is the same, 2 per cent below base. It is already set at a level which is greater than the price regulation and was in place before the report came out.

  390. Correct me if I am wrong, but I have a table here which suggests you pay 0.1 per cent on bank accounts normally, but if it is going to rise to 2 per cent, it means the account has to receive more than £1,000 a month.
  (Mr Crosby) We pay base minus 2 per cent with a regular credit of £500.

  391. What do you pay on an ordinary account without that guarantee of £500 or £1,000 coming in?
  (Mr Crosby) We pay 0.1 per cent on personal accounts if there is no £500 coming in.

  392. What is the proportion of your accounts where you pay the 2 per cent and what is the proportion where you pay 0.1 per cent?
  (Mr Crosby) We are paying the interest on a very high proportion of the balances. Necessarily those customers who do run balances on their current accounts make sure that they put the £500 in so they take the benefit. We find ourselves—and we are content with this—paying the full interest on the vast bulk. I can get the number, but it is the highest proportion because customers follow that.

  393. It would be interesting if we could have that figure.
  (Mr Crosby) Yes, we can follow that up.

  394. Mr Targett, what about your two banks?
  (Mr Targett) We have a series of accounts which do pay at the lower end, at that 0.1 per cent level which you mentioned.

  395. To small- and medium-sized enterprises.
  (Mr Targett) There are various rates. I shall have to come back with specific data in terms of what sorts of customers with what rates. Our view would be that we have to meet the competition and meet that price and we will do it.

  396. What about the Abbey National interest rates?
  (Mr Harley) We pay 3 per cent on both retail and business bank accounts.

  397. That is one of the rates, but the other rate is 0.1 per cent, is it not?
  (Mr Harley) That is right.[8] There are monthly credits.

  398. What proportion of accounts receive 0.1 per cent and what proportion receives 3 per cent?
  (Mr Harley) I shall have to get back to you with the specifics on the split. It will move from month to month, but I will give you the most recent figure.[9]

  399. What is the real objection to what has been proposed by the Competition Commission, which, to remind you, is that you either pay small- and medium-sized business current account holders base rate less 2.5 per cent or you give them money transmission free of charge or a choice between the two? What is the real objection? Is it the level of this, because the rates you are giving at the moment in many cases are not exactly generous, are they? You could invest the current account balances at Bank of England base rate.
  (Mr Harley) We have no objection. We already offer business customers free banking and 3 per cent in credit interest. We are more than meeting the remedies already. We have no objections.

8   Note by Witness: Mr Harley's statement pertains to personal bank accounts only. All Abbey National business bank accounts pay the 3 per cent interest. Back

9   Ev 125. Back

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