MSPs demand that Osborne acts over Scottish banking duopoly

GEORGE Osborne is under pressure to tackle the “duopoly” held by Royal Bank of Scotland and Lloyds over the Scottish banking market.

MSPs have written to the Chancellor warning that reforms proposed by the Independent Commission on Banking (ICB) are “insufficient” to increase competition north of the Border, where market concentration is much higher than for the rest of the UK.

In the letter, MSPs on the Scottish Parliament’s economy, energy and tourism committee also accuse Sir John Vickers’ ICB of missing an opportunity to tackle “massive inequality” in pay in banking and the large bonuses for those at the top.

The committee argues that the taxpayer stakes in both RBS and Lloyds offer an ideal opportunity for the UK government to correct some of the ethical problems.

John Wilson, the deputy convener of the committee, has also laid into competition regulators, in particular the Office of Fair Trading, for failing to answer calls by Holyrood to conduct a formal investigation into market competition in Scotland.

MSPs believe that the “challenger bank” which will be created by the sale of 632 Lloyds branches across the UK will not be enough to solve the specific problems in Scotland.

“We remain bitterly disappointed that to date, the relevant authorities have not seen fit to conduct such an inquiry and believe the Office of Fair Trading’s review of barriers to entry, expansion and exit in the UK retail banking sector was a very pale shadow of such a formal inquiry and no effective substitute,” Wilson wrote.

The Scottish Government has also in the past highlighted the particular challenges of market concentration north of the Border, where Lloyds and RBS still have a stranglehold on both the personal and current accounts and small business lending markets. It is estimated that together they account for about 80 per cent of each.

Wilson has told the Chancellor that the duopoly is an issue “the UK government has to tackle in Scotland”.

Colin Borland, head of the Federation of Small Businesses in Scotland, echoed the MSPs’ call, saying that “now is the time to consider effective business banking competition north of the Border”.