Discussion

1.  Free competition is an end in itself - the pundits' fallacy

When lots of small firms are competing this is true in theory but debatable in practice. It is even less true when only a handful of large firms are competing, which is the case with banks in the business banking market. Competition in a mature "oligopoly" with high barriers to entry tends to be more restrained, and not to deliver the best possible outcome to customers. Firms in the industry know that any price cuts or big innovations will bring them only fleeting advantage, as their big competitors will copy them, and the only outcome will be lower profits for everyone in the industry. Where the industry is important, there can therefore be a case for regulation.

How does this apply to business banking? The big banks have nearly 90% of the market. Critics make much of the fact that new entrants are trying to break in - especially Abbey National and Halifax. But they will cherry pick, so will this make much difference, and if so how soon?

Critics argue that making the big clearers pay interest on current accounts will stop new entrants being able to offer a competitive edge. This is doubtful, but even if it is true - so what? The aim of promoting competition is to provide better terms for buyers. If simple regulation can achieve the same thing quickly, is that necessarily so bad? One can argue against this regulation, but criticising it merely for supplanting unregulated competition is a feeble argument.

2. Greater competition will make a big difference - the economists' fallacy

The Competition Commission are economists, and boy does it show. They think that making it easier for businesses to transfer their accounts will make a significant difference to the competitive environment. That is why their recommendation for banks to be required to offer interest-bearing current accounts or accounts free of charges is only short term.

In fact, of course, transferring a bank account will still cause major disruption to a business and will not be undertaken at all lightly. Any unfreezing of businesses' reluctance to move banks will probably be extremely marginal, because of the hassles and other demands on businesses' time that occur in the real world, outside the realm of economists' models.

Therefore the OFT will probably have to extend this short term recommendation indefinitely.

3. Banks are always expensive and unfair - some small business people's fallacy

The former head of haulage business Curtis Pickard claimed that, "We were just another small business which was killed by the banks.... The interest charged on our debt was ridiculous, up to 3 per cent over base rates". The existing system of charges - for example, charges for paying money in - was "simply ridiculous".

However, the bank said the business was loss-making, declining in turnover and technically insolvent.

There will always be some business people who blame others because they have a bad business case.

However, there are plenty of businesses which can prosper if they are given a more imaginative solution than a clearing bank can offer - which is where Banking Liaison Group can help.