The Treasury select committee’s inquiry into competition and choice in the banking sector is too focused on middle-class consumers, according to thinktank New Economics Foundation.
Speaking to Money Marketing, NEF head of finance and business Tony Greenham says he is concerned that the inquiry does not address the needs of lower-earners.
He says: “The terms of reference are too narrowly focused and risk failing to lead us to a banking system which is diverse and resilient and serves the needs of everybody, not just the well off.
“The question is choice for whom? My concern is that they are saying as long as middle-class customers who want pensions and mortgages have got a nice choice of providers, that is job done but of course it is not.”
The inquiry’s terms of reference allow it to investigate the impact of the financial crisis on competition and choice in retail and wholesale markets, the results of consolidation among banks and mutuals, the barriers to market entry and the Government and competition auth-orities’ strategy to increase banking competition.
The committee has taken oral evidence from Lloyds Banking Group, Royal Bank of Scotland, Barclays and new and prospective banks such as Metro Bank and Tesco Bank as well as the FSA and consumer groups.
Written evidence has been submitted by other types of financial institutions, with the deadline for submissions now passed, but the committee has yet to call for oral evidence from them and Greenham says he would like to see a diverse spread of organisations called to give evidence. He says: “If they are going to go where I think they ought to and explore the question of more diversity in financial institutions, they should call in credit unions and the Community Development Finance Association among others.
“The remit was drawn in such a way that it cannot step outside the mindset that if you only apply more free market theory to the banking system, it would be OK. I am saying it will never work because it is a utility industry which provides the basic plumbing of the economy and needs to be looked at as such.”
Greenham says the tussle around restructuring the banking sector could have been avoided if the Labour Government had been more “adventurous” when dealing with UK banks during the financial crisis.
He says shareholders should have lost their money in the “near bankrupt” banks which would have opened up the possibility of taking them over without the need to offer compensation.
He says the Government’s concern about being seen as Old Labour made it wary of nationalisation despite it being a practical solution.
He says: “Ideology got in the way of practicality. Much more could have been brought more quickly into national ownership, restructured as necessary. with some parts then being sold on and some kept public. It would have been easier to deal with these issues and better for taxpayers and the economy as a whole.”