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Labour: we will refer banks to competition authorities Labour: we will refer banks to competition authorities
(about 17 hours later)
Labour will refer the high street banks to the competition authorities immediately if it is elected in 2015, Ed Miliband is expected to say in a centrepiece speech on banking reform on Friday.Labour will refer the high street banks to the competition authorities immediately if it is elected in 2015, Ed Miliband is expected to say in a centrepiece speech on banking reform on Friday.
The party leader wants the proposed review by the Competition and Markets Authority (CMA) to complete within a year of the election, and anticipates it could lead to a breakup of the larger high street banks, such as RBS or Lloyds.The party leader wants the proposed review by the Competition and Markets Authority (CMA) to complete within a year of the election, and anticipates it could lead to a breakup of the larger high street banks, such as RBS or Lloyds.
He is expected to argue that greater competition in financial services is central to restoring Britain's long-term economic prosperity and providing consumer choice. The intention would be to give greater choice for consumers and to address obstacles preventing new players from breaking into the market.He is expected to argue that greater competition in financial services is central to restoring Britain's long-term economic prosperity and providing consumer choice. The intention would be to give greater choice for consumers and to address obstacles preventing new players from breaking into the market.
One proposal is a cap on market share on the largest banks, but the party would not indicate whether it had a specific cap in mind. Labour officials would only say that a market share cap of 25% – as had been suggested in a leak on Tuesday night – was wide of the mark.One proposal is a cap on market share on the largest banks, but the party would not indicate whether it had a specific cap in mind. Labour officials would only say that a market share cap of 25% – as had been suggested in a leak on Tuesday night – was wide of the mark.
The Miliband speech aims to show that he can develop his successful, but arguably fully mined, living standards agenda into policies that offer a wider route map to greater economic prosperity. He also hopes to exorcise Labour's reputation for having left the City of London insufficiently regulated during its time in office.The Miliband speech aims to show that he can develop his successful, but arguably fully mined, living standards agenda into policies that offer a wider route map to greater economic prosperity. He also hopes to exorcise Labour's reputation for having left the City of London insufficiently regulated during its time in office.
But the party leader suffered an immediate political set back when Mark Carney, the governor of the Bank of England, said he was opposed to crude caps on the size of market share for banks.But the party leader suffered an immediate political set back when Mark Carney, the governor of the Bank of England, said he was opposed to crude caps on the size of market share for banks.
Giving evidence to the Treasury select committee, a sceptical-sounding Carney told MPs: "Just breaking up an institution doesn't necessarily create a viable or more intensive competitive structure."Giving evidence to the Treasury select committee, a sceptical-sounding Carney told MPs: "Just breaking up an institution doesn't necessarily create a viable or more intensive competitive structure."
In an attempt to set the scene for his economic speech, Miliband tried in parliament to wrongfoot David Cameron by demanding that the prime minister prevent state-owned RBS to award bonuses to bankers worth up to twice their annual salaries.In an attempt to set the scene for his economic speech, Miliband tried in parliament to wrongfoot David Cameron by demanding that the prime minister prevent state-owned RBS to award bonuses to bankers worth up to twice their annual salaries.
The European Union has said that if a bank wants to award a bonus to double a banker's basic salary it should be subject to a shareholder vote, although the proposal is being challenged by the Treasury on the grounds that it creates perverse incentives by removing the link to performance.The European Union has said that if a bank wants to award a bonus to double a banker's basic salary it should be subject to a shareholder vote, although the proposal is being challenged by the Treasury on the grounds that it creates perverse incentives by removing the link to performance.
Cameron tried to sidestep the issue of the future size of RBS bankers' bonuses by saying there would be no increase in the overall RBS bonus pool this year. He said that Miliband had "all the moral authority" of the Rev Paul Flowers, the disgraced Co-op banking chief, given the last government's record on banking regulation. Downing Street said the total package of pay and bonuses at RBS had halved under the coalition government, from £3bn in 2009 to £1.4 bn in 2012.Cameron tried to sidestep the issue of the future size of RBS bankers' bonuses by saying there would be no increase in the overall RBS bonus pool this year. He said that Miliband had "all the moral authority" of the Rev Paul Flowers, the disgraced Co-op banking chief, given the last government's record on banking regulation. Downing Street said the total package of pay and bonuses at RBS had halved under the coalition government, from £3bn in 2009 to £1.4 bn in 2012.
Labour retaliated by saying this was a red herring. Chris Leslie, shadow chief secretary to the Treasury, said: "The house needs to know that RBS has been reducing the number of bankers on their roll by about 2,000 bankers in the last year. You'd expect their total pay bill to actually start to fall. So it should."Labour retaliated by saying this was a red herring. Chris Leslie, shadow chief secretary to the Treasury, said: "The house needs to know that RBS has been reducing the number of bankers on their roll by about 2,000 bankers in the last year. You'd expect their total pay bill to actually start to fall. So it should."
Carney also challenged the Labour proposal on bonuses by telling MPs that he agreed with the assertion of the parliamentary commission on banking standards that the EU bonus cap was a crude way to try to control pay – although by contrast the business secretary, Vince Cable, urged RBS to show restraint.Carney also challenged the Labour proposal on bonuses by telling MPs that he agreed with the assertion of the parliamentary commission on banking standards that the EU bonus cap was a crude way to try to control pay – although by contrast the business secretary, Vince Cable, urged RBS to show restraint.
However, Labour is convinced that it can make a strong intellectual case that the growing integration of UK banking is damaging to industry, and consumers, so justifying a reference to the Competition and Markets Authority. The party also hopes market reforms can prompt a greater emphasis on German-style regional banking in which longer-term commitment to industry is made.However, Labour is convinced that it can make a strong intellectual case that the growing integration of UK banking is damaging to industry, and consumers, so justifying a reference to the Competition and Markets Authority. The party also hopes market reforms can prompt a greater emphasis on German-style regional banking in which longer-term commitment to industry is made.
A general reference to the CMA was nearly adopted by the cross-party banking commission chaired by the Tory Andrew Tyrie – but the idea has been rejected in the Commons by the government.A general reference to the CMA was nearly adopted by the cross-party banking commission chaired by the Tory Andrew Tyrie – but the idea has been rejected in the Commons by the government.
However, last July the Office of Fair Trading announced a market study on competition in banking for small and medium-sized businesses and said this review would help the CMA decide whether to hold a full inquiry.However, last July the Office of Fair Trading announced a market study on competition in banking for small and medium-sized businesses and said this review would help the CMA decide whether to hold a full inquiry.
The Labour leader is expected to draw heavily on the criticisms of the banking industry set out by the Tyrie commission, and argue that the recent Banking Reform Act failed to stop banks operating as untouchable vested interests.The Labour leader is expected to draw heavily on the criticisms of the banking industry set out by the Tyrie commission, and argue that the recent Banking Reform Act failed to stop banks operating as untouchable vested interests.
Labour has said it wants an obligation on banks to provide a basic bank account for all customers, a review of seven-day current account switching, and a fiduciary duty of care, explicitly putting the best interests of customers first and foremost in the financial services sector.Labour has said it wants an obligation on banks to provide a basic bank account for all customers, a review of seven-day current account switching, and a fiduciary duty of care, explicitly putting the best interests of customers first and foremost in the financial services sector.
The government argues that it has already handed competition powers to the Financial Conduct Authority and new players are entering the market. The coalition claims regulators are already in talks with 22 new retail banking operators – and only in September introduced measures aimed at introducing seven-day bank switching.The government argues that it has already handed competition powers to the Financial Conduct Authority and new players are entering the market. The coalition claims regulators are already in talks with 22 new retail banking operators – and only in September introduced measures aimed at introducing seven-day bank switching.
It also claims customer surveys show the "big five" high street banks – Lloyds, RBS, HSBC, Santander and Barclays – consistently gave less satisfaction than others. But despite that, the party notes, those banks' market share has increased over the last few years. The big five control 85% of the current account market as opposed to 71% before the financial crisis – and 67% of mortgage gross lending compared with 38% before the crisis.It also claims customer surveys show the "big five" high street banks – Lloyds, RBS, HSBC, Santander and Barclays – consistently gave less satisfaction than others. But despite that, the party notes, those banks' market share has increased over the last few years. The big five control 85% of the current account market as opposed to 71% before the financial crisis – and 67% of mortgage gross lending compared with 38% before the crisis.
Leader comment, page 34
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