The Competition Commission’s proposal to lift price controls on the UK’s four biggest banks demonstrates that competition is working for small businesses, the British Bankers’ Association said today.

The Commission’s proposal announced today to lift four years of price controls on the so-called Big Four is the latest in a growing list of evidence that there is increasing competition among banks for small business banking:

• the Office of Fair Trading (OFT) reported that 4.3 per cent of business accounts move from one bank to another every year. It also found that if the price of banking rose by five per cent or more, 19 per cent would change their bank and a further 48 per cent would consider switching;
• the Federation of Small Business recently reported that its members’ use of the Big Four banks fell from 83 per cent at the time of the Cruickshank Report in 2000 to just under 70 per cent in 2006; and
• the BBA’s online Business Account Finder regularly attracts more than 4,000 visitors per month.

Eric Leenders, Executive Director of Retail Banking, said:

Since the Competition Commission reported, smaller banks have been robustly challenging the Big Four for a slice of this market, added to the already aggressive competition between the Big Four themselves. Competition is growing and thriving, and is always the best way to drive down costs.

The Banking Code enshrines an obligation on banks to ensure that moving an account between banks is easy and as stress-free as possible, for businesses as well as for individual clients. Business clients tend to be more ’sticky’ – their relationship with their bank manager is paramount, and the longer they stay with the bank, the better the deals they tend to strike. Banks are in business to do business; and that means that competition works for clients who stay with their banks as well as those who move.

Small business is vital to the UK economy and is integral to UK banking. When the Competition Competition ruling came into force in 2003, UK banks managed 3,120,000 small business accounts; in 2006, they managed 3,339,000. Banks loaned more than £46 billion to small businesses in 2006, and held £46.4 billion on deposit. During 2006, more than 590,000 new small businesses established banking relationships.