We're told that competition makes everything better — cheaper, fairer, more efficient. But when it comes to banks, that's a myth. Six giant institutions dominate the UK market. They are all charging high fees, paying low interest, closing branches, and abandoning communities. But banking shouldn't be a marketplace engaged in a race to the bottom in service levels and to the top in charges; it's a public utility. It's time for a publicly owned Basic British Bank to make banking fair again.
This is the audio version:
This is the transcript:
Some people say that competition fixes everything.
There are right-wing economists in think tanks in Tufton Street near the Houses of Parliament who worship competition as if it were a God. But when it comes to banking, competition doesn't work.
The fact is that we are told that private banking reduces the cost to us all of the provision of banking services, and that's a myth. The claim that markets will deliver efficiency, innovation, and fairness is all just a pile of bunk.
Look around. The fact is, banks exploit us. They charge us excessive borrowing costs. They pay tiny amounts on sums deposited with them. And their fees are remarkably high and also remarkably consistent, as if there is some sort of arrangement going on between them. And all the while, banks are closing down branches and abandoning communities as if their customers do not matter to them .
And the fact is, banking is vital. It's not a normal market. Banking provides what is called a public utility, something upon which we are utterly dependent. Most people in the UK have to have a bank account. It's thought that at least 92% have, and the others are frankly marginalised within society as a consequence of not having one.
You need a bank account to claim benefits, for example, and yet it's quite difficult if you have no permanent address.
You can't choose not to bank, but if you can't bank, you are forced beyond the reaches of well-being.
So, banking is not a privilege. Banking has to be a right in the society in which we live, and that's why I make the point - banking is a public utility. But that means that private profit-seeking inevitably exploits necessity within this market. And the consequence is, and let's be blunt about it, rent extraction from the people who are least able to pay because banks are taking money from people with very little for a service that they should have as a matter of right.
And there is, anyway, an illusion of choice within our banking market. The big four banks dominate with about 70% of the market as a whole.
Barclays have around 20 million UK retail customers.
Lloyds are thought to be the biggest UK retail bank, with up to 26 million UK customers.
NatWest, formerly Royal Bank of Scotland, has 19 million customers.
Nationwide has 16.3 million.
Santander has 14 million at present, but will actually leapfrog up the scales when it finally acquires TSB, and will end up with around 19 million customers.
And HSBC, well, we don't know the precise figure for HSBC because they don't publish it, but we do know that it has around 39 million customers in all, and a fair number of those are in the UK, so it probably sits in the middle of all those other banks.
So six banks with between them around 120 million accounts, when there are only 68 million people in the UK. But remember, many people, me included, because I have businesses, have many more than one account. So in reality, those 120 million accounts are split unevenly across society.
And although there might appear, as a consequence, to be a fair amount of choice, all these banks provide a service which is remarkably similar. Even the so-called challenger banks, the tiny ones which governments have been trying to promote, look just the same as the big banks when it comes down to it. Competition in this market is then an illusion. What we have is cartelised capitalism, a bunch of large organisations that can split up the market between them and pretty much take us all for a ride.
What we know is that when markets fail, the state should step in. The NHS, after all, was created to keep private health honest. The BBC was created to keep private broadcasters honest, even if some would say it's not doing a great job of that at the present point in time. And what we need, I suggest, is a Basic British Bank, the BBB, to keep private banks honest as well. And that BBB would, of course, be owned by the UK state.
What would it do? It would offer basic, current and savings accounts to everyone, in the way that those old enough to remember it will recall that the Girobank once did, and it operated through the post office.
There would be no extortionate overdraft rates.
There would be fair interest on savings, entirely in line with bank base rate, or maybe a per cent or so less, but nothing like the penal and very low rates offered to small savers now.
And this Basic British Bank would have local branches, either of its own or in partnership with post offices and councils, and hubs of that sort are now becoming more common and are really important.
Why does this matter? It matters enormously. Access to money is about access to society. And financial exclusion is about social exclusion. And large numbers of people in this country are effectively excluded from both, but they're also now, because of the absence of bankers on the high street, excluded from advice as well. And the advice of an honest bank, which is not driven by profit, but has at its core an obligation to serve the customer, would be immensely valuable to those who need help with managing their money. Private banking has no incentive to do that. Private banks profit from instability and not service. A state-backed Basic British Bank could end that.
We could, with such a bank, restore trust in the financial system.
We could create downward pressure on the fees charged by private banks.
We could handle government payments more effectively, taking them out of the private banking system and ensuring that they're paid securely and efficiently by the British Basic Bank.
We could open the doors to what should be a public payment infrastructure, which is a measure of resilience. I talked about this in 2008, when I thought that the biggest threat arising from the financial crisis, at least in its very early stages, was that there was a chance that the payment mechanism which ensured that British households could pay their supermarkets for food might fail. And that risk still exists at this moment, and it could present us with a crisis again, because if people can't buy their food because there's no payment mechanism to let them do so, then they will riot.
The fact is that payment infrastructure is not in public hands. We've learned nothing from 2008, yet. 17 years later, we still do not have a state-owned payment system within this country. And this British Basic Bank, Basic British Bank, whichever way around you wish to put it, the BBB could build that mechanism on which all other banks could be built, so that we would have a payment infrastructure in this country which would work whatever happened to our banks, because the state would own it.
In other words, I'm talking about building resilience, doing what is essential to ensure that banks can always work when the private sector quite simply cannot guarantee that.
And that's the fundamental reason why counterarguments against this proposal have to fail. We are already allowing the state to compete with the private sector in health, in education, and in public infrastructure. The argument that the state shouldn't compete is nonsense when it comes to banking because it, too, provides essential public infrastructure. And that's why we need the state to be involved in banking in a way that it is not at present. Banking is, as I've said several times in this video, and I will repeat now, a public utility and not a private playground.
Competition has not worked. It has not served us. Banks are, in fact, ignoring all our needs as they wave goodbye and walk out of our communities.
The solution is not deregulation, but a change in the design of banking.
The Basic British Bank would be fair, inclusive, and accountable, and that's critical. We need that core nationalised underpinning for our banking service to guarantee that whatever happens in our society, it will work.
Once upon a time, we needed the post office to deliver this. We nationalised the Royal Mail to deliver letters because that was core infrastructure. We've sold it now. We got that wrong. It's failing in the private sector. But the point is, we now know that state ownership works partly because we sold the Royal Mail and saw what a mess the private sector could make of it.
If we were to nationalise banks, we could avoid that risk. We could keep the private sector out of our society when it comes to the risk of payment failure, and that's critical.
And we built the NHS on this basis, of course, as well. We built it because we knew that competition in healthcare could not work.
So let's build the Basic British Bank now, to deliver fairness, to deliver resilience, and to make sure that we can bank on Britain again because we can't do that right now.
Hat tip: My thanks to Clive Parry for some of the details in this video, which he supplied in a comment on this blog.
Taking further action
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The major banks tend not to offer very competitive savings rates, but it is literally the work of handful of minutes to open a savings account online or via an App at a rate currently higher than the BoE Base Rate, with a full FSCS guarantee.
But people collectively tend not to do this, and the major banks benefit from such “inertia”. It’s probably no great surprise which socio-economic group or income / wealth decile that dominates the “shopping around” world.
Risk aversion is powerful.
And I would be reluctant to save with a fringe entity.
I get the “risk aversion” point. But new outfits that are authorised as banks in the UK with the FSCS guarantee scheme are not really risky. And their Apps tend to be better than the major banks’ offerings (though not always).
Maybe education about the benefits of “shopping around” in the FSCS guaranteed world (considerable – rates of 4%+ are readily available today, for example) alongside the risks (struggling to think of any “incremental risks” vs risk of the entire banking system being “nuked” by a particularly serious “black swan”) would be more helpful than simply denouncing uncompetitive rates from the major banks and implying folk have no choice but to accept these.
Though re education, Martin Lewis / Money Saving Expert has been doing this for years, and yet folk continue to largely act in the best interests of the major banks by being completely passive in the face of uncompetitive interest rates.
I do9 not bank with any of the Big 4
Capitalist competition is a myth. Do we see it where it matters?
❌Energy prices?
❌Rail fares?
❌Water prices?
❌Car insurance?
You should definitely shop around for car insurance. It’s very rare you can’t get a better deal. Likewise broadband.
Rail is an interesting one. It’s certainly possible to get some very good deals by advance planning, but rail networks are inherently expensive to run safely, with successive governments choosing to load as much cost onto passengers as they feel able to get away with.
Agree re energy (in the price cap era – before this shopping round was generally quite rewarding) and water.
There are precedents around the world that the Government could look at, even in the USA! (Bank of North Dakota). Then there’s KfW and Sparkassen in Germany, and there are examples in Canada, Costa Rica, and Chile. And on and on. It almost looks like the UK is an outlier! Surely not!
Thanks
Some more thoughts. The Post Office already has 11,500+ branches, more than all major banks combined. Many are in rural and underserved communities where high street banks have withdrawn.
It already provides banking access infrastructure: cash deposits, withdrawals, balance checks, bill payments and identity verification on behalf of most major banks.
As a government-owned network, it could serve as the physical branch interface for a state-owned “Basic British Bank” (BBB), without needing to build a new network from scratch.
The BBB could:
Use Post Office counters for account opening, deposits, withdrawals and customer service
Build a digital-first platform behind this physical presence
Offer simple current and savings accounts with fair fees and inclusive access
Integrate government payments (benefits, pensions, tax refunds) directly into these accounts
Potentially act as the government’s own bank, strengthening its deposit base
Over time, the BBB could also coordinate with local credit unions and community development finance institutions, using the Post Office as a shared public-facing hub.
Rather than reinventing the wheel, a Basic British Bank could “plug into” the Post Office’s trusted national network, turning a government-owned service point into the backbone of a national public banking system.
But we also need bank staff to advixse peoiple – so I am not convinced the PO is enough.
And dedicated hubs where privacy can be supplied are also necessary.
The Post Office is already providing a similar service in lieu of banks (search “post office banking hubs”). With a bit of extra training for staff, this could easily be expanded to support a new, state-backed bank.
Banking is rather more than counter services, IMO
Banks essentially operate a cartel. There are several ways to deal with unfair competition from cartels. Regulation is often tried but almost always fails in practice. Often the regulators are “captured” via the companies they are supposed to regulate. We can try to split up businesses that capture too large a proportion of the market. But there has been a marked reluctance to do so in recent decades (perhaps though malign neoliberal influence). And, in the case of banks there are quite a number of them, so this is more difficult to justify. And then there is genuine competition from the public sector to offer essential utilities, which is what you propose and I would fully concur.
Neoliberals claim to support market competition, though in practice they only do so when it suits them. So, neoliberals should not object to competition. They claim, falsely, that the public sector is more efficient than the private sector. So, by their own retoric, they should be able to outcompete the public sector and also make a healthy profit (spoiler, they can’t).
You mention the BBC, for whom I worked for a long time. For all it’s faults, it has done a remarkably good job of maintaining standards in broadcasting for decades. It also provides infrastructure, in the form of technical standards, recommended practices and training, which underpins the whole of UK broadcasting (something most people don’t realise). And it does all this for less than the cost of TV advertising, which we are all forced to pay, through increased prices, whether we watch commercial television or not.
There is much wider scope for public organisations to compete with the private sector. This is a model I favour rather than authoritarian, and often ineffective, regulation. For example why is there no public organisation, separate from local authorities, providing commercial rented property? In almost every sector there could be state competition. For natural monopolies, of course, nationalisation is the only reasonable answer.
A nationalised high street banking service is something I have wondered about so thanks for raising it. I
never used it but there was a giro bank which operated differently. It was , of course, privatised and ended up as part of Santander. I am told it is a system more widely used in Europe. Was it a viable alternative?
In a word yes – but Thatcher hated it for being so.
Re: Girobank – I was a customer for years, it did everything I needed and worked efficiently.
IIRC it was first taken over by Alliance & Leicester, then they were taken over by Santander.
I’m with the Nationwide now, no complaints except that my nearest branch is a 16 mile round trip away, currently £5 on public transport.
I’d certainly consider using a basic British bank.
This is desperately needed in rural areas that are turning into complete banking deserts as more and more towns find themselves with no bank at all or banking hub. The argument that people now bank online is somewhat disingenuous given the large elderly population who can/will not bank online.
Thank you for a very timely and relevant post. Along similar lines Steve Keen has just put up a video showing how commercial banks are in large part responsible for the current housing affordability problems, and how that might be addressed:
https://www.youtube.com/watch?v=rSuacxBGaL8
See my post just put up.
How much do those banks charge to provide accounting services – electronic card payments, online banking, direct debits and standing orders, access to cash machines etc?
Which banks?
The need for a BBB is urgent. offering the UK population a proper banking fair service.
There is another banking crash looming in the USA over asset finance. Barclays admit that they have at least £20bn tied up in this, probably more.
By all accounts the US asset finance “assets” are not AAA value debt but more like ZZZ having been rebranded.
Sounds familiar? Yes, the great mortgage “bond” crash of the Great Recession of 2008/9.
Expect the main UK banks to be screaming for bail outs in the not too distant future.
Of course Rachel from accounts could stop the great interest payment on banks regulatory accounts to get them used to doing “more with less”.
Inn fairness to the Nationwide they are the last bank standing in my home town, Frome and opened a branch in Glastonbury after the ‘Big Four’ pulled out of the town.
I have previously suggested ‘public offices’ in centers of over a certain size or no more than a particular distance apart with Local and National Government services, Post Office etc so add the British Bank in to that
There’s a banking hub in Frome library where reps from some banks turn up on a rota. And the Post Office always have someone there to do basic transactions. Not ideal, but at least it’s something.
Four of the five Somerset Unitary Authority councillors for Frome are Greens.
Progressive place. I sometimes share some of Richard’s work with one of them via social media.
Thanks for doing so
Yes, Frome is relatively progressive. I suspect you have quite a few followers here, Richard. Maybe a talk at the Cheese and Grain would be worthwhile, though it would be quite a trek across country for you.
The Trustee Savings Bank (TSB) was founded in 1810 in Scotland by Rev. Henry Duncan to provide savings options for ordinary people who could not access commercial banks. At primary school we were encouraged by our teacher to save one shilling a week at the local TSB. Unfortunately a large commercial bank was allowed to swallow up the TSB. We really need it now.
That is one of the influences on this idea.
Cartel is absolutely the right word.
I have heard the German banking system would be better as it is stratified, state and corporate banking, medium sized business banking and local and small business banking where the banks know the people and businesses they are lending to. There is also a choice of around 1500 banks to choose from.
Would this coupled with a state bank like the old post office account be the best option?
I agree that we need a basic British bank. May I suggest that it should be called Mainwaring, Wilson and Company Ltd.
🙂
The key is regional banking to get the value of creation of capital, the essential role of the bank. Stefan Wells nails the core of it the German banking system with it lower capital and regulatory requirements allowed regional banks to raise capital, lend to local business, take unique relationship risks that only a smaller more nimble entity can do.
Richard in your recent talks with the green party you alluded to the ability of Central bank to expand monetary policy with no inflationary effects, this is central. If we lend to the right sectors, productive not consumptive or speculative or asset based (real estate) we avoid bubbles and inflation.
The role of Government can be limited to operate, but great value efficient banking is now done by fintec like revolut and others.
The key is that large banks have rolled back to the City and raise global capital to issue to very large corporates, no longer with the ability and line of sight to have relationship and understanding of small local business, and regional economies. We need clever regulation to ensure the proper allocation of bank balance sheet, we need clever use of securities and instrumentation to expand development to rural infrastructure that is productive.
We can do this without effective overall GDP/Debt ratio with astute accounting, neting off asset development to asset creation.
We really need the policy thinking to move to this, and not get boged down in the detail of operating a bank.
I would also force all banks to split their retail banking and investment banking activities and only have retail banking fall under the FSCS guarantee system.