MPs to turn screw on banks.

The political heat on banks will be turned up over the next few months with the publication of two potentially damning reports.

First, MPs on the House of Commons’ Treasury Committee will publish the findings of its inquiry into banking, most probably in March.

Central to its inquiry has been an examination of the market for small business banking services.

This will be followed by the long-awaited Competition Commission inquiry into the possibility of greater competition in the banking market.

Both reports were prompted by the July 1999 publication of the highly critical Cruickshank Report – a 16-month investigation by the now-chairman of the London Stock Exchange, Don Cruickshank – into banking services.

Edward Davey, a Liberal Democrat MP who sits on the Treasury committee, said it was specifically interested in the issue of charges on small businesses, both how much and how they are charged. ‘If the inquiry comes up with a crunch report it could be quite a significant development for small businesses,’ he said.

Charges from the main high street banks are a central issue as 91% of all small businesses in the UK hold their accounts with the four major high street banks – Barclays, HSBC, Lloyds TSB and NatWest.

MPs were also investigating the feasibility of introducing PayCom, a new regulatory body looking at the banks’ payment networks.

The committee’s final hearing was on January 30. Among those who appeared before it were Melanie Johnson, economic secretary to the Treasury and the British Bankers’ Association.

Its work could dovetail with that of the Competition Commission. ‘I hope we will say things that will be taken into account by the Commission,’ said Davey.

Last March the banks were referred to the commission following Cruickshank.

It completes its inquiry on June 19th. The findings, to be announced by the Department of Trade and Industry, are expected soon after the inquiry’s completion. Set up to establish whether banks are fair to small and medium-sized businesses, Cruickshank called for major changes in the ways banks do business. It found customers could pay up to #5bn less for services if banks were open to full competition.

Cruickshank said this situation on costs was exacerbated in the small business market, because of the dominance of the high street banks.

Stephen Alambritiz, head of public affairs at the Federation of Small Businesses, said there had been ‘improvements’ since the Cruickshank Report.

Banks now clarify and invoice businesses over charges.

However, the possibility of a recession meant that some members feared banks could introduce new charges. ‘The key is to ensure the banks don’t go back to their old ways,’ said Alambritiz.

Davey’s committee colleague, Nigel Beard (Labour), said the end of the Commons inquiry would not mean the end of Westminster keeping its eye on the banks. ‘It’s going to be a regular item for the Treasury select committee,’ he said.