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To be published as HC 1534-iv




Treasury Committee

Independent Commission on Banking

Wednesday 2 November 2011

Peter Vicary-Smith, DOMINIC LINDLEY, Christine Farnish and Gillian Guy

Evidence heard in Public Questions 280 - 310



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Oral Evidence

Taken before the Treasury Committee

on Wednesday 2 November 2011

Members present:

Mr Andrew Tyrie (Chair)

Michael Fallon

Andrea Leadsom

Mr Andy Love

Mr George Mudie

Jesse Norman

Mr David Ruffley

John Thurso


Examination of Witnesses

Witnesses: Peter Vicary-Smith, Chief Executive, Which?, Dominic Lindley, Principal Policy Adviser, Which?, Christine Farnish, Chair, Consumer Focus, and Gillian Guy, Chief Executive, Citizens Advice Bureau, gave evidence.

Q280 Chair: Let me begin by asking about the ICB’s competition proposals. Since Dominic is still pouring himself some water, I’ll start with Peter. Are they enough?

Peter Vicary-Smith: I think the issue for us is in, if you like, the response of Lloyds to the proposals around enhancement of divestment to create more competition. We also say that UKFI is not taking a proactive role in promoting competition either. So I think our feeling is that, with Lloyds not playing ball, with UKFI not seeming to have the appetite to pursue this, we are concerned that if we just wait until 2015 and then decide whether there is an issue and then we need to refer it to the Competition Commission, an awful lot of water has gone under the bridge. So I think we need seriously to consider whether, if they are not willing to play ball, now is the time for referral to the Competition Commission.

Chair: Other thoughts? Mr Lindley?

Dominic Lindley: I think that is right. It is about the mechanism for implementing the competition proposals. If we look at market concentration, even after the Lloyds’ divestment the market is still going to be far more concentrated than at the time of Cruickshank let alone before the financial crisis. If you look at the seven years leading up to the financial crisis, the big four banks were steadily losing market share to a series of challengers, but then, when the Government intervened through distorting subsidies, it almost led to massive consolidation and distorting subsidies benefiting the big at the expense of the middle banks and the smaller banks that were allowed to be consolidated. That is not a good market dynamic, whereby you don’t particularly have to serve your customers well to get a dominant position in the market, you just have to get some kind of Government subsidy or intervention.

Q281 Chair: Maybe the answer is not therefore necessarily divestment, but the creation of conditions for easier market entry.

Dominic Lindley: Yes, conditions for easier market entry and easier market exit. You talked earlier about the competition remit of the Financial Conduct Authority, but if you look at the remit of the PRA it doesn’t have any competition remit at all, despite the fact it is going to be dealing with the arrangements for failing banks and what happens to them. Without a clear competition remit, there is always the danger that that resolution will involve increases in market concentration and reductions in competition.

Q282 Chair: We had better give you an opportunity to answer the first question of the last session, which is whether you think that these bodies have the right objectives.

Dominic Lindley: I think generally, as Peter said, the FCA needs the objective of a fair, transparent market in financial services, but certainly the PRA does not have a competition objective and also we are worried about the scope of its insurance objective.

Chair: You are arguing that it should?

Dominic Lindley: We are arguing that the PRA should have a competition objective. That is what we put into the Independent Commission on Banking.

Chair: But not the FCA?

Dominic Lindley: And the FCA should have an operational objective for competition.

Q283 Chair: Back to the question I was asking, which is about the ICB’s competition proposals.

Christine Farnish: Perhaps I could pick up on switching. We were very pleased to see the recommendations about a redirection service to be done in short order and with no risk or cost to consumers. The research we have done on switching of bank customers shows that the prospect of things going wrong, particularly with direct debits, is the main reason why people are sticky and don’t bother to switch. They want the hassle taken out of the process, sure, but they also want to be absolutely certain that all their direct debits and standing order arrangements will be properly dealt with and nothing will come back to bite them. That has been the real problem with the current arrangements, and we are very pleased to see this recommendation. I think someone-hopefully yourself, Chairman-needs to hold the industry’s feet to the fire to make sure that it does happen in the timeframe that is proposed.

Gillian Guy: We generally welcome the proposals but would like to see a bit more analysis around their impact, particularly on consumers and particularly on what we would say are marginalised consumers-so understanding the impact and pace of change and how that affects particular groups of people who can’t swiftly make changes. Just talking about switching, a large number of the people who we see, through nearly 400 bureaux, would say they are not au fait with, they don’t understand necessarily, the pros and cons and the process for switching. It is not really a fair or even market as far as they are concerned. Some of them are not even allowed into the market because they can’t get basic bank accounts, which is a whole other issue.

There is also the issue of tightening credit under these proposals, and just worrying that there could be a credit crunch by regulation, which again could well cause difficulty to those lower income families who, frankly, at the moment rely on credit for their wellbeing and lifestyle. So, disproportionate detriment again and thinking how that will impact on people, squeezing them out of financial inclusion, whereas the drive ought to be to include more people.

Peter Vicary-Smith: Let me make a comment on the switching argument. There is one bit where we would like to have seen a marker put down, which is the redirection service-of course, it is going to be the Payments Council that takes it forward. We have seen that as not always a quick process, shall we say, when things have been given to the Payments Council. We would like to have seen something that says, "Okay, we think that ultimately there is an argument for introducing portable account numbers here. We recognise that that could have huge cost in terms of systems changes, but in 2025, 2030, whenever it is, we will expect you to have introduced portable account numbers and built that into your systems upgrade proposals between now and then. Meanwhile, get on with redirection services so that at least we know that there is a date by which it is happening." That is what happened in the mobile phone industry. Switching took over in the mobile phone industry only when the industry was dragged kicking and screaming by the regulator to portable mobile phone numbers. That is when switching happened, and the same is going to be true here.

Chair: We might come back to that later this afternoon.

Q284 John Thurso: Christine, can I come back to you, because I have been reading your evidence again? On the free-in-credit model in banking, you stated that you had no particular opposition to the fact that free-in-credit may go. Do you think the ICB reforms actually spell the end of the model and do you think that is a good or bad thing?

Christine Farnish: Well, actually I don’t. I think the ICB completely fails to look at the fact that the business model operated by the UK retail banks is quite odd in many ways and it is not a model that is copied anywhere else in the world-it is unique to this country. It is a model whereby charges and who is paying for the delivery of the service are completely unreflective of where the costs are built up. As we said in the earlier session, one of the consequences is that it makes it very difficult for new entrants to come in and offer something different. Everyone is forced into this particular model and it is one where, of course, there are current winners like myself, because my account is always in credit, and there are also losers. For example, if you have had estimated bills from your electricity company for the last few quarters and you suddenly get a catch-up with a meter reading that leads you to have a huge bill and you are on a limited income, without much to spare at the end of every month, that could tip you into overdraft. It is absolutely no fault of yours, and you will end up paying and that can be a real shock to a household that is living on a fixed income or that is really struggling to budget. So I think there needs to be much wider public debate about this and it is a shame, to our mind, that the ICB didn’t at least flag this issue in their report.

Q285 John Thurso: The evidence says that the model of banking seems unsustainable and that that is not a great problem provided there is a clampdown on unfair ancillary charges and a move to transparent charging. We have sort of dealt with the transparent charging. Broadly, from a consumer point of view, given that everybody pays for everything somehow, somewhere, is there not a strong argument that appropriate charges that are upfront is a better model than free-in-credit with hidden charges?

Christine Farnish: We feel it would be because the charges would be clear. They would be certain. Consumers need and want certainty; all our evidence with our research shows that. They would, if levied across the whole banking customer base, be at a very modest level so they should be affordable. I think you could still have a place for basic bank accounts that were free for people on low incomes, and that is another debate for Parliamentarians to consider, but I see no problem with that. The problem at the moment is because something is being given away free and because you need banks to be profitable, if you clamp down on this perverse behaviour, it will pop up somewhere else.

Q286 John Thurso: I am sure my colleague will follow up on that question with regard to people on lower incomes. To what extent does free banking remain a barrier to competition as opposed to something that is not very transparent? Is it an active barrier to competition?

Peter Vicary-Smith: I would like to see a diversity of models because, after all, we are all paying for banking services, as you say, one way or the other, and there are some people for whom a credit balance on which they receive interest is a valuable dimension. Those people may well want to have that and pay for their banking separately so they have defined charges. Other people are not bothered about getting interest on their balances, but they would rather have something that didn’t charge them upfront. I think in other industries we see different people saying, "I am after this group of consumers and I would like to package what I want to get. I can package it in the way that attracts those people, knowing it is less attractive to somebody else." At the moment we have a bit of a one size fits all.

Q287 Mr Love: In the last few weeks we have seen Royal Bank of Scotland limiting the access of the basic bank account holders to cash machines-non-branded cash machines-and, of course, that follows up action that was taken by Lloyds about a year ago. We are also aware in this Committee from some of the evidence that was submitted to us that there are other ways in which basic bank account holders are limited in the services that they can access from banks. Is there anything in the ICB report that addresses the issues of the service provided to low income customers?

Christine Farnish: No, there is not. The report is silent on low-income customers. We understand the pressures the ICB were under and the time constraints on their investigations. They had very complex, big issues to look at but, again, we feel this is a bit of a gap, simply because access to banking services, transactional banking, is an essential of life these days. If those services are not available to a section of society or are unaffordable or will give them nasty surprises in terms of surprise charges that they can’t afford, we have a very real problem.

The basic bank account has been very successful in filling a big gap and I think a lot of progress has been made by the banks since this Committee started focusing on it some 10 years ago. It made a big difference. However, it is important that the banks do not now start rowing back from the arrangements that they made previously and start to limit the service offering. There is further to go. We would like all the basic bank account providers to have those accounts available through the post office, for example, and we would like people to be able to access cash at ATMs and make payments-maybe limited payments functionality, but there should be some.

Q288 Mr Love: Anything you would like to add, Mr Vicary-Smith, about what the ICB should have recommended in terms of addressing the issues that affect low income customers?

Peter Vicary-Smith: I agree entirely with what Christine has been saying. One other dimension in terms of the behaviour of RBS is that this is not just about basic bank accounts, because I think we have seen over the years sporadic attempts by the industry to charge for ATM usage and I think this is a first step in that process. I could envisage a position they would like to reach whereby they charged you to get cash out, you can’t use cheques, you do not have a cheque guarantee card, you are charged to use credit cards or debit cards. I can envisage something whereby transactions became all taxable. I think it is important that we fight at each stage that this comes up and it has come up with the RBS basic bank account, so I think we need to push back very strongly against that.

Dominic Lindley: The RBS decision is going to withdraw access for 1.1 million of your constituents to over 80% of the free cash machines in the UK, so they are going to have to travel further, and they might incur extra inconvenience. It would be a disaster if, because of that inconvenience, they chose to stop using their bank account and moved back to managing in cash, when we all know that you can save money on your household bills by having a bank account and, of course, you need one to become an active participant in the labour market. So the RBS decision is very disappointing and the real worry is that other banks start to follow suit, and that will overall reduce the convenience for millions of basic bank account holders.

Q289 Mr Love: Ms Farnish, in relation to the withdrawals, I asked last week some industry mutual representatives when the tipping point would come when they would seriously cast in doubt the free ATM access that is currently available at most cash machines. Is that a worry for you?

Christine Farnish: It is a worry. We have written to the BBA about the action taken by RBS and Lloyds Banking Group on basic bank accounts and link access recently and we are urging the industry to reach an agreement to maintain common standards in basic bank accounts that meet the needs of lower income consumers. We are waiting for a response.

Q290 Mr Love: Ms Guy, basic bank account holders, what should we be doing?

Gillian Guy: We would have liked the Commission to look at low-income customers because they are not popular with the financial institutions and that is why they suffer time and again, and we don’t necessarily have the impact drawn out. We campaigned long and hard to get ATMs available for everyone free and don’t want to see that disappear, but as soon as the market breaks ranks then, in the same way as bills go up, you see that gathering ground, and we have a serious concern that that might be general. It does not stop there and it feels to us that there ought to be minimum standard facilities that should be available to everybody to include them in the general market.

As has just been said, you are out of the labour market if you don’t have a bank account. Undischarged bankrupts can’t get them other than from a couple of banks. There is no good reason why they can’t be given by all banks and we have engaged the BBA in that. The BBA is a trade association so it takes the views of its members and if they don’t want to shift on that, they don’t shift on it. There needs to be something more to make financial institutions live up to a responsibility to low-income customers.

Q291 Andrea Leadsom: I would like to come back to the issue of competition. I would be grateful for your thoughts on whether the requirement for Lloyds to divest further branches from the ICB proposals goes far enough to be able to promote competition. Particularly, I think it was Which? that said there is a risk that Lloyds will proceed to sell the 300 branches, thereby hopefully avoiding having to sell further branches so that it is a fait accompli. I would be interested to know whether you all share that view.

Christine Farnish: The real problem with the Lloyds issue, it seems to us, was the decision in the first place. It was done in the heat of the financial crisis. There were much bigger things at stake for this country. In normal times or peacetime that decision would never have been allowed as part of competition law. I think we need to recognise we are where we are.

Q292 Andrea Leadsom: Would you see it reversed? Would you like to see the Lloyds HBOS merger reversed?

Christine Farnish: I think it is very difficult once a decision has been made and-

Q293 Andrea Leadsom: Why? What is difficult about it? Obviously it has cost implications but you could just decide to do it, couldn’t you? Should the ICB have done that?

Christine Farnish: The ICB has the power only to recommend. I guess one of the considerations at the moment would be further weakening and destabilisation of the UK banking system. I would have thought that might be an issue that decision-makers need to bear in mind.

It is possible that once our economy and the financial system and the current crisis over the euro is in slightly less dangerous territory the whole structure of the banking market could be looked at properly by the competition authorities and in a few years’ time hopefully that will happen. That would probably be one of the best ways to deal with it and that is why we have competition law.

Q294 Andrea Leadsom: Ms Guy or Mr Vicary-Smith, do you think the Lloyds HBOS merger should be reversed?

Peter Vicary-Smith: I think it should be seriously considered whether it should be referred now to the Competition Commission which, of course, has the power to do that. I don’t think we should be waiting until 2015 and however many years it then takes to reach a decision, because there is an exploitation of market position going on right now and consumers and small businesses are suffering as a consequence.

I think the other thing I would say is we have been continually disappointed by the role of UKFI in looking at how it can enable competition to be strengthened. It has that objective in there. The first tranches, of course, were sold to Santander, which did nothing for competition, and we fear that UKFI should be applying a public interest test to these disposals. So we would like to see further divestment, possibly a referral, and certainly UKFI being a public interest, so we can get back to at least the competitive marketplace we had in 2009, if not something better than that.

Q295 Andrea Leadsom: Bearing in mind the taxpayer shareholding in RBS, should we be looking at breaking up RBS and parcelling that off in its entirety?

Peter Vicary-Smith: I think how to sell RBS back, if you like, is a different issue from the Lloyds HBOS-

Andrea Leadsom: Yes, it is absolutely a different issue.

Peter Vicary-Smith: Because a merger was formed.

Q296 Andrea Leadsom: But you could potentially then create new entrants, couldn’t you? You could potentially sell RBS off in pieces to different UK organisations like Virgin Money, Metro Bank, M&S Financial Services, Tesco Bank and others, and potentially create a new set of entrants. Would that be something from a consumer point of view? Could you see merit in that?

Peter Vicary-Smith: I think that, first, we have to see a greater appetite from some of those new entrants to take over large amounts of those large networks. My feeling would be deal with Lloyds-disentangle the consequences of merger, if you like, first and see whether that can address the competitive dimension on its own. A proactive break-up of RBS, I am not sure. I am not sure I would go quite that far yet.

Andrea Leadsom: Do either of you have any comments on that?

Gillian Guy: I think it is appropriate to refer to the Competition Commission. To have all this push towards competition is limited if very few players are in the market in the first place, and that limits the ability to have genuine competition, so freeing up the entry and exit into the market is important.

Christine Farnish: To go back to the earlier conversation, to have effective competition, I think you need choice for consumers and you need to know what you are buying in clear, simple terms. Part of the problem with the retail market, regardless of how many entities you have, is that pretty well everyone is selling the same thing and it is very hard to see what you are paying for. I think that is the most important problem with competition for retail customers in banking.

Q297 Chair: You said earlier, Peter Vicary-Smith, that consumers and small businesses are suffering right now. Can you give us the evidence for that, if not now, in writing?

Peter Vicary-Smith: I can give you the evidence in writing and maybe others can give it now.

Dominic Lindley: I think you can see an increase in margins across many retail banking markets. If you look at the average quoted overdraft interest rate, it is at a 16-year high despite the fact that base rates are a lot lower, there is enhanced-

Q298 Chair: Many other factors may lie behind that. The question I am asking is whether you can disentangle various effects in the market in order to be able to identify. You said you can see the consumers and small businesses are suffering right now, Mr Vicary-Smith, and rather than have an extensive exchange now, why don’t you come back with something that looks copper-bottomed on that point?

Peter Vicary-Smith: We can write to you on that, yes.

Q299 Michael Fallon: Can we come back to switching and the redirection service that has been proposed. One of you said a few moments ago this was going to be cost-free, and I think that is in the report. Would it really be cost-free? If a consumer incurs some extra charge because they have fallen out of some time period, will that be borne by the bank?

Dominic Lindley: The Payments Council have told us that there will be a guarantee that these will be refunded and they want to impose an obligation on the bank you are switching to to deal with that. One of the nightmares for consumers is when both banks are denying responsibility for a particular thing going wrong and then it is difficult to get a charge refunded, whereas the Payments Council are saying that the receiving bank will refund that charge. Whether that needs to be backed up by regulation might be-

Q300 Michael Fallon: Where will the legal responsibility for refunding that charge lie?

Dominic Lindley: They are saying the legal responsibility will lie on the bank you are moving to, so the bank you are switching to.

Michael Fallon: They are saying that. How will that bind the bank?

Dominic Lindley: Supposedly it will bind either through regulation by the FSA under the Banking Conduct of Business Rules and, if that is not happening, consumers will ultimately have access to the ombudsman to complain about that charge.

Q301 Michael Fallon: Do you think that will be enough to reduce or remove this fear of switching?

Christine Farnish: I think it will take time because this is a very deeply ingrained fear that people have. Most people are quite confused and can’t remember exactly which standing orders and direct debits they have set up and who they are to-obviously their bank knows-and they know there are serious consequences quite often if one of those goes wrong. They can end up with surprise bills that pop up-all sorts of things can happen-which is a lot of hassle as well as putting their budgets out of kilter. There needs to be a proper communications campaign, probably, to accompany this easy switching and safe switching to make sure that consumers change their mindset about switching.

Q302 Michael Fallon: Are the recommendations as framed by Vickers on easier switching enough? Apart from the communications campaign and better education and so on, are there other measures you would like to see to make switching even easier?

Gillian Guy: I think there needs to be more information and transparency around switching. We have just heard about the legal obligation on the transfer bank, but there are two things about that. First, consumers have to know their rights before they can exercise them, and they have to be confident that, in exercising them, they will get somewhere. Secondly, knowing that something will be sorted out does not relieve the anxiety if you are trying to make ends meet and support a family. I think that is very difficult.

We spoke earlier about people having access to lawyers. The majority of clients who come into Citizens Advice clearly don’t. They need free advice to help them through the switching as well. Although that would not take the obligation off the banks to make it clear and transparent, I also believe that people need some advice to go alongside that to give them comfort and to help them when they have to sort out any muddles.

Q303 Michael Fallon: Where would that responsibility fall? Who would provide the free advice?

Gillian Guy: The free advice at the moment is provided through Citizens Advice-75% of our bureaux provide it, but that funding is under threat.

Michael Fallon: Sure, but who else could provide it? Would you put the obligation on the banks to provide it, for example?

Gillian Guy: I think the banks should pay for it.

Q304 Michael Fallon: The Payments Council have estimated the cost of all this at between £650 million and £850 million. Is that estimate right?

Christine Farnish: It is almost impossible for us to know, I think.

Dominic Lindley: We know that, when the Dutch introduced a similar system-we talked to our counterpart organisation called Consumentenbond-the costs of the Dutch system were lower than that. What is not clear from the Payments Council, because they have not published a breakdown, is where exactly the costs fall-how much are falling on the bank and how much are falling on small businesses and others who will have to update their systems. You see this system being recommended, and it will definitely provide benefits to customers, but it would have been nicer to do a proper cost benefit analysis first, which is almost what we are calling for on portable bank account numbers. When I switch my bank account, all these sorts of administrative costs are imposed on my employer, there are all the businesses and Government departments that receive a payment from me if I get paid any benefits. All those admin costs are, at the moment, spread out over the system but no one has a clear idea about how much portable bank account numbers will lead to benefits for all those organisations.

Peter Vicary-Smith: Portable bank account numbers, if you get to it, is a cleaner solution. I don’t intrinsically like something where you say, "We have a system here and if we don’t do it properly, you have the ability to have recourse and get your money back," because you then get into a tangled process of redress, you get into ombudsmen overload and all the rest of it, so something where you don’t have to get into that. You simply have a portable bank account number; it is cleaner. The cost benefit analysis we call for would say whether it is a better solution than redirection. At the moment we can’t tell.

Michael Fallon: Nobody has answered whether this £850 million figure is right.

Peter Vicary-Smith: We don’t know.

Michael Fallon: Do you think it sounds right?

Peter Vicary-Smith: What we are all slightly dancing around is that, of course, it has come from the Payments Council and the Payments Council is a representative of the banks, so I am sure they would not want to underestimate the charges.

Q305 Michael Fallon: But if it was right, would it be reasonable?

Peter Vicary-Smith: I am not trying to be cute with the answer, but without the cost benefit analysis it is hard to say because it has not been done on laying out what the benefits to consumers will be. Will that be enough to encourage switching?

Q306 Michael Fallon: How much switching would you like to see to justify the expenditure of £500 million or nearly £1 billion? What is the percentage you have in your mind? Should it match that in energy markets or telephone markets? When will you know that switching has really started to take off?

Dominic Lindley: I think you need a number of different mechanisms to judge a success. Firstly, you need to know what is happening to switching rates but, secondly, you need to know what is happening to anxiety about switching. The whole purpose of this system is to increase consumers’ confidence in switching. At the moment, too many of the people we speak to who are thinking about switching say, "Well, it might be too much of a hassle, I’m worried about something going wrong," so we clearly want those numbers to be going down in addition to an actual increase in the number switching.

Q307 Michael Fallon: Why do you think the Commission came out against portable numbers?

Peter Vicary-Smith: I think they were worried about costs of implementation and ease of it, and the banks’ concerns about system upgrades that would be required and so on. That is why I would like to have seen it as a long-stop solution that is built into their plans over a long time, because the banks are updating their systems all the time. I would have thought, give them a long time to do it but be clear it is going to happen.

Q308 Michael Fallon: It ought to be possible, if you are spending £850 million on a redirection service, to make that future proofed towards eventual translation to a portable number.

Peter Vicary-Smith: You would imagine so.

Q309 Andrea Leadsom: I just love this idea, personally. My question is if we are looking at £800 million to redirect and the bank chief executives, when we first put this to them, were sort of saying, "Oh, it would cost £2 billion". It seems to me if we are looking at spending £800 million to redirect payments, would it not be better to spend £2 billion, albeit a significantly bigger sum, I don’t underestimate that, but then you do have the utopia. That is question number one, why are we spending £800 million? If it does not work we are going to have to spend the £2 billion anyway because you would write off the £800 million because it would be a different target.

Secondly, what is your idea of how a portable bank account would work? Is it that there is a centralised clearing system where all bank accounts are held and then banks plug to play? They buy a licence, for example, to play with that clearing system. If that is the case, could it also address the issue of the complexity for new entrants, since they have to, at the moment, go to a clearing bank as an agency clearer?

Sorry, three part question. The money that we would be writing off now, would it be better to go straight to the portable account system? Secondly, does that solve the competition issue? Thirdly, would you thereby also create, in a sense, a system whereby people could instantly transfer their accounts? Obviously they could change account number if they wanted and not if they didn’t want to.

Peter Vicary-Smith: For Which?, I will address one and two and then turn to my colleague for number three. In terms of what does this look like, think how hard Vodafone and 02 and all the rest of it fight for your business at the point at which you are wanting a new fancy phone-that is because it is so easy for you to move over. That is, to my mind, the nirvana. You might choose not to switch-a lot of people on mobile phones stay with the same provider-but you often move to a different tariff, whatever it may be, and there is always the threat that you can very easily move over. If we could get to that, I think banks would start to fight to keep existing customers rather than spend all their time trying to tempt people to move over. That is where we would want to get to. Is it better to do that now? Again, I come back to the fact we need the analysis to be done. In what is a very good report, the disappointment in Vickers is there has not been an analysis over the cost benefits of those two dimensions. Dominic, on the third?

Dominic Lindley: On the technical details, there are two main methods. There is the portable customer number, which is where I have my own kind of number that is attached to a bank account and that customer number can move to be attached to a different bank account. That is the Swedish bank giro system, which is available for corporates in Sweden. The other one is the portable account number that I would be able to move and take my sort code and account number with me, which might be more expensive but it depends on the analysis. What it might require as well is changes to the international systems for identifying bank accounts.

Certainly, when we talk to all our counterpart consumer organisations across Europe, Australia, the US, they are all interested in the system of portable bank account numbers, but no one is grasping for it. I know recently there was a report in Australia, and the Australian Banking Association cited the rejection of portable bank account numbers in the UK to justify rejecting them in Australia rather than doing their own kind of analysis, because it leads to significant benefits.

At the moment we are expecting all these small businesses to upgrade their systems, to be good at moving the payments over and, of course, Government departments. One thing that you might be able to ask the Government about on switching bank accounts, if you go to the directgov website it is very hard to find a single page that explains which people you need to contact to move your benefits over to your new account. You might need to contact HMRC or the DWP, so that might be one way of improving things.

If we look back to what Peter was speaking about- what the telecoms regulator did, which was of course Don Cruickshank who commissioned independent cost benefit analysis-the telecoms companies at the time said the system is not designed for it, it is too expensive, it won’t work, but armed with that analysis the regulator, which had a duty to promote competition, pushed it through. That is what we are lacking in the financial services sector at the moment.

Q310 Andrea Leadsom: That comes back to the competition objective potentially not being strong enough because we are going with a halfway house, if I can call it that, of a redirection service whereas potentially for the sake of competition you could go to the centralised clearing system. Would either of you like to comment?

Christine Farnish: Could I simply say that I think you need to question technical experts because I certainly am not competent to answer the questions other than to say that £860 million sounds a lot for quick switching and safe switching. I think you need to add a few noughts if you want to do number portability. My understanding is we are talking billions. There is a very significant cost. These payment systems are extremely clunky and complicated and they are enormous and getting anything to go wrong could be pretty awful for both consumers and the economy. I think a lot of work that needs to be done about feasibility.

Peter Vicary-Smith: That is why if it is going to be done it needs a long lead time to enable the banks to do it.

Gillian Guy: I don’t think any of us know what it will cost. It is great to shove a very large number at it because it puts us all off. I suspect it is not dealt with here because it is in the "too difficult" box. No one wants to unravel it and certainly no one wants to prove on the cost benefit analysis that it is worth investing in because someone has to make that investment. But I think someone should take it out of the "too difficult" box and have a look at it so that we are dealing with facts rather than conjecture.

Andrea Leadsom: That is very helpful, thank you.

Chair: Thank you very much indeed. This Committee likes having a go at the "too difficult" box from time to time and maybe we will take another look at that particular issue. Thank you very much for coming in and giving a second set of evidence on this tricky subject.

Prepared 9th November 2011