Bank charges: we need more competition

So the Office of Fair Trading is withdrawing its attempt to force the banks to reduce their charges for going overdrawn to reasonable levels. This is a pity: we all have stories about the way banks behave to their customers. For a week or so, I was charged every time my account fluctuated above the critical level. If I hadn’t bothered to put money in, I would only have been charged once.

But regulating the banks into reasonable charges was always going to be a difficult call when the underlying economics of the situation allows them to charge pretty much what they like. The real issue here is not about regulation, it is about competition. We have too few banks – far too few compared to our competitors. That is why Britain is taking so long too claw its way out of recession.

There are only 170 branches per million people in the UK, compared to 520 in Germany and 960 in France. No wonder small businesses, and individual retail customers, get such a raw deal. We will carry on getting a raw deal until the government breaks up the oligopoly they have allowed to build up, which can charge what they like – and pay themselves what they like – because there is barely any competition.

What is fascinating about this approach is how shy the Conservatives are about it, and here is the dilemma for the Cameron government. Do they allow the semi-monopoly to continue, in the name of some perverse version of the free market, and pander to the financial lobbyists (as seems likely) or do they step in and create a proper free market in banking.

The first is unthinkable – for anyone who wants to make the UK economy thrive – but the second is so terrifying that they seem unlikely to do it. We look set to have another government which espouses open markets in theory but daren’t put them into effect in practice.

It is, in short, precisely the issue that the Liberal government of 1906 was swept to power on.