Financial Services Bill

Unlike the previous new clause tabled by the right hon. Member for Birkenhead (Mr. Field), I have sympathy with the intent behind new clause 9. I believe that customers should be made aware of the charges that they are really paying. That also has a considerable bearing on new clause 15, tabled by the hon. Member for Edmonton (Mr. Love). I strongly agree with the hon. Gentleman that we should not be in a position in which people do not really know what they are being charged for such a crucial service as banking, or indeed any service. I also agreed with him when he said—murmurs of approval from a sedentary position by the hon. Member for Wolverhampton, South-West (Rob Marris) could be picked up on the microphone system—that we have, if not market failure, market distortion in this respect. That needs to be addressed. It is caused by a lack of information in the market; people do not know what their bank will take off them as their relationship with their bank develops. Even if they do know that when they first receive their terms and conditions, they certainly do not each time the bank sends them new terms and conditions, which they do as frequently as once every six months and certainly once a year. I am wary of the specific approach taken by the right hon. Member for Birkenhead in new clause 9, because it amounts to direct price regulation. Normally, although not always, that leads to higher costs and less competition in the long run, and therefore consumers lose out. There are countless examples of that having happened in markets. The absolutely crucial task that we need to accomplish—by "we" I mean both Parliament and regulators—is to arrive at a point at which consumers can choose which bank to be with on the basis of the costs that they will really incur in having the service made available to them. In a nutshell, what is required is that the banks should provide customers with a regular itemised estimate of the total charges and interest payments on their account. The sum should include interest forgone on current account surpluses and on deposits, defined as the difference between any interest earned and base rates. That amount would be very low or zero at the moment, because base rates are low, but those are very unusual circumstances as we recover from the crisis. The sum given should also, of course, include any transaction charges, regular account charges or other charges that are customarily levied. If we ensured that, we would go a long way towards supplying customers with the information they need to choose between various banks. Let us compare the situation for a moment with what has happened in the insurance market. Some 30 or 40 years ago, people had a relationship with one broker or company and rarely thought of changing each year. These days, they go to a search engine and look up which insurance company will give them the best deal. For a small fee, or sometimes nothing at all, they obtain the information required to get the best possible insurance deal. There is no logical reason why such a service cannot be provided for a market such as reail banking, to enable people to have full transparency on bank charges. However, it requires banks to be forced to supply the necessary information. I set out such a proposal in a short publication for the Centre for Policy Studies a few years ago. It was taken up by the Office of Fair Trading, which was already on the case, or at least thinking carefully about going in a similar direction. The central problem that we had, which is pertinent to the new clauses, was that financial services legislation and other regulatory arrangements for the conduct of retail bank business do not provide clear leadership on the matter. We are left with a legacy of self-regulation and a bit of a mess where the responsibility falls between three stools. We need leadership from the Financial Services Authority. We need it to be in the lead and responsible for maximising competition in the sector, which is why, although I will not labour the point, it is crucial that financial services legislation should have at its heart an objective to maintain competition. If it had that, the FSA would work closely with the OFT to secure what was required. It is very important to get across to all those who have bank accounts—virtually all of us these days, or at least a very high proportion—that there is no such thing as "free banking", which is a misleading term that can only have any currency because people do not know what they are really charged. While we leave the market as distorted as it is, without the information required to enable people to know that, we will continue to have scandals or unacceptable practices of the type that we have encountered in the case of overdraft facilities.