Select committee report, Competition and Choice in Retail Banking, finds competition in the market is not strong enough
Lloyds Banking Group's powerful position in the retail banking sector could be damaging competition in the UK, MPs warn.
The part-nationalised bank's market share in some retail segments is almost double that of its nearest competitor, but there has been no assessment of the impact its standing has had on competition, according to a report from the Treasury select committee.
The sale of 600 Lloyds branches demanded by the European Union may not be enough to address competition concerns, the report concludes, and MPs say a public interest test based on competition should apply to the divestment and future sell-offs.
The committee's report, titled Competition and Choice in Retail Banking, concludes that competition in the sector is not working. It comes before the keenly awaited spring report from the Independent Commission on Banking (ICB), due on 11 April. The ICB is believed to be considering plans to split banks into separate investment and retail divisions, and a break-up of Lloyds following its rescue takeover of HBOS.
The committee took evidence from a wide range of banking industry figures including former Lloyds chief executive Eric Daniels, Barclays boss Bob Diamond and Royal Bank of Scotland head Stephen Hester.
Its report also claims that the sale of more than 300 Royal Bank of Scotland branches to rival Santander was a missed opportunity. The branches, sold to appease European competition concerns following its taxpayer-funded bailout, could have gone to a smaller firm and boosted competition, the committee said.
MPs acknowledged the trade-off between raising revenues for the taxpayer and boosting competition, but argued that strengthening competition would have a more positive impact on the wider economy.
While none of the UK's largest banks is allowed to bid for the Lloyds branches, the committee wants a public interest test applied to the divestment – as well as the sale of Northern Rock.
The report says: "As yet, there has been no assessment to see what impact Lloyds' strong position has had on competition in the retail market. We are concerned by the emergence of such a powerful player in the retail market and the potential competition implications."
The committee also found a lack of price transparency in the current account market, and difficulty in switching accounts.
Committee chairman Andrew Tyrie said: "For competition to be effective, customers need to know what they are buying, how much they are paying, and to be able to transfer their custom from one provider to another without risk. The chief executives of the large incumbents told the committee UK retail banking was enormously competitive, but a far larger range of witnesses described the industry as close to an oligopoly.
"We also received much evidence about low levels of consumer satisfaction and poor treatment of consumers by the major banks. We could not but conclude from this that competition in the UK retail banking market is not strong enough."
A Lloyds spokesperson said: "The report offers a valuable way forward to increase competition to benefit customers. While we believe that the market is already highly competitive in many areas, we recognise that customers still perceive current account switching to be difficult.
"We agree with the committee's emphasis on greater transparency and would support work by the Office of Fair Trading with the industry to develop a common approach to customer current account information which would allow consumers to compare providers' offerings more easily."