Select Committee on Treasury Appendices to the Minutes of Evidence


Memorandum submitted by the British Retail Consortium


  The British Retail Consortium (BRC) represents the whole range of retailers, from the large multiples and department stores through to independents, selling a wide selection of products through centre of town, out of town, rural and virtual stores.

  The BRC serves small and medium sized retailers through its retail trade association members, who often represent a particular sector of the retail spectrum. A list of BRC trade association members who represent the SME retail community is given in Appendix 1.


  BRC submitted a detailed response to the Competition Commission commenting on its suggested hypothetical remedies to counteract the complex monopoly situation which it had found the major clearing banks exerted over the SME community. This is published in the Competition Commission Report (volume 3, pages 49 to 51, chapters 8.321 to 8.336).

  The BRC is delighted that the majority of its suggestions were contained in the Competition Commission's recommendations.

  In particular we would highlight the following as being important to SME retailers:

    —  Greater transparency of cost structure, interest rate tariffs and "plain English" contracts.

    —  Unbundling of services, with clearly stated tariffs for each service.

    —  The raft of measures to make it easier for SME retailers to switch banks more easily.

    —  That current accounts with a positive balance should earn interest at a rate linked to the base rate as recommended by the Competition Commission.

    —  That the Director General of Fair Trading should review the provision of banking services to SME's after three years to ensure the measures adopted had resulted in the market becoming more competitive.

  The BRC would like to draw the Treasury Committee's attention to three aspects of banking services to SME's that are of particular significance to the retail community.


  As highlighted in the Cruickshank Report all retailers pay excessive charges for the acceptance of bank payment cards. However this is particularly true for SME retailers who can pay up to 4.5 per cent of turnover to accept credit cards. Although the Competition Commission remit for its investigation included all aspects of money transmission charges, there was no specific mention of payment cards.

  The Cruickshank Report recommended the setting up of an independent Payments Regulator to oversee the UK money transmission market to establish and maintain a competitive regime. Although the Treasury has completed a thorough consultation exercise on the structure, scope and operation of a future Payments Regulator, no legislation has been brought before Parliament. The BRC has participated fully in this consultation process and understands work has been undertaken to draft legislation to set up a Payments Regulator, however pressure on Parliamentary time has not allowed a Bill to be presented.

  The BRC supports the recommendation of the Cruickshank Report to set up a Payments Regulator and considers that for SME retailers who accept a high proportion of credit cards, a fairer money transmission regime would lower their costs significantly. The BRC continues to press for the legislation to be presented to Parliament at the earliest opportunity and requests that the Treasury Committee supports this aim.


  The BRC welcomes the proposal by the Competition Commission that the major clearing banks should investigate the feasibility, costs and associated benefits of a national scheme in which the main clearing groups would be required to enter into arrangements with those without a branch presence in a particular area, for use of branches on fair, reasonable and non-discriminatory terms.

  SME retailers depend heavily on the local bank branch network for obtaining change and depositing cash and cheques. SME retailers would continue to be seriously disadvantaged if there is only one major clearing bank offering branch services locally with no national branch sharing scheme. They would have virtually no opportunity to switch banks for a more cost effective current account service, because they would be tied to the major clearing bank offering the only local branch. This is particularly relevant in rural areas.

  Branch sharing is a vital component of greater competition for the SME retail community and as such the BRC urges the Director General of Fair Trading to ensure the main clearing banks do deliver a fair scheme within the timescale specified (one year of the publication of the report) and that the Treasury Committee includes this important aspect in its report.


  The BRC notes that the Competition Commission has used the European Union definition of an SME as having a sales revenue of up to 40 million ecus (ie £25 million)

  The retail community considers that the banking industry definition of an SME as having sales revenues up to £1 million is nothing more than a cynical exercise to reduce the scope of SME companies that will be subject to the new recommendations.

  The Office of National Statistics data for VAT based enterprises in 2001 shows there are over 10,000 separate retail companies with a turnover above £1 million but below £25 million. These enterprises would not benefit from the Competition Commission's recommendations should the restricted banking industry definition of an SME be taken.

  If the Treasury Committee is minded to seek a UK definition of an SME, rather than a European Union definition, the BRC would point to section 248 of the Companies Act of 1985 which defines a medium company as having a turnover of not more than £11.2 million. Clearly this ceiling will have to be increased in light of inflation since 1985. The BRC estimates this would raise from £11.2 million to £20.5 million.

  However the BRC urges the Treasury Committee to stand by the Competition Commission's definition of an SME of having a turnover up to £25 million.


  The British Retail Consortium on behalf of its SME retail members supports the major recommendations of the Competition Commission on the supply of banking services by clearing banks to SMEs.

  If a Payments Regulator were to be legislated in Parliament, a national branch sharing network be in operation and the Competition Commission's definition of an SME to be adopted, the BRC considers SME retailers would receive even better service from major clearing banks.

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