Competition back in the spotlight? | EEF

Competition back in the spotlight?

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The Leader of the Opposition, Ed Miliband, is set to put the issue of banking competition back in the spotlight in a major speech on Friday. If reports are correct, he will set how a future Labour government would tackle what is now widely agreed to be an overly concentrated market which offers insufficient choice for small businesses in the High Street.

This is not a new issue. The Independent Commission on Banking and the Parliamentary Commission on Banking Standards both lamented the lack of competition in small business banking; government policy is seeking to take steps to encourage new entrants and increase choice and the new Competition and Markets Authority will soon publish its market study of retail banking for SMEs. And of course, there has been no shortage of commentary on this blog on the subject.

While there have been some recent signs that the lending environment is slowly improving for small businesses, with a shift in supply factors such as the appetite for risk and efforts to gain market share, the underlying problems that come with an overly concentrated market remain - higher costs, tighter terms and conditions and reduced availability.

In addition, the effects of the financial crisis on SME's appetite to borrow have not fully been shaken off either. There has been a notable trend in companies opting out of borrowing either because they do not think applications will be successful or because of previous experiences of trying to secure finance from banks.

It has consistently been our view that if we want higher levels of investment and more companies growing into bigger, globally focused ones we need a finance landscape in which banks vigorously compete for SMEs' business; where companies have more choice outside of banks and where there is a greater understanding of the diversity of small businesses in the UK.

This world still seems a long way off, even with the reforms that have been implemented thus far. EEF has made a number of recommendations on what more needs to be done to speed up progress on increasing competition - from a time limited incentive for companies to switch banks and an investigation into the practicalities of sharing branch infrastructure to the creation of a network of state-backed, but private sector led regional banks.

Other ideas on how to increase competition, such as those that may be announced later in the week are to be welcomed. What we must see is a pipeline of activity designed to reduce the levels of concentration we see in the Business Current Account market at the moment and to increase alternative sources of finance outside the banks. If Mr Miliband speech keeps the spotlight on the need for action on competition - that can only be a good thing.


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