Should we end free banking?

Andrew Bailey, the Bank of England's Executive Director, spoke today on the future of UK banking, and argued that we nede to tackle "the dangerous myth of free in-credit banking".

Bailey told the Westminster Business Forum that:

Free in-credit banking in this country is a dangerous myth. It is a myth because nothing in life is free; rather, it means that we pay for our banking services in ways that are hard to link to the costs of the products we receive. This can distort the supply of banking services. The dangers include that the pricing of banking to consumers varies too much depending on the services they use. I also worry that the banks may not properly understand the costs of products and services they supply. And I worry also that this unclear picture may have encouraged the mis-selling of products that is now causing so much trouble. In short, I think that the reform of retail banking in this country cannot move ahead unless we tackle the issue of free in-credit banking, and have a much better sense of what we are paying for and how we are paying.

Bailey is, of course, right that "free in-credit banking" is a myth. Almost every current account on the market pays zero, or close to zero, interest on accounts in credit, while inflation stands at 3.0 per cent. As a result, if you have a current account, you are in effect paying the bank close to 3 per cent of your deposit each year for the privilege.

It may even be, as Bailey suggests, a dangerous myth. After all, when the amount one is "paying" is contingent on the rate of inflation, it can be very difficult to keep track of what that actually is at any one point; in addition, many people don't have a full understanding of how inflation and interest rates combine, meaning that they do indeed think they are paying nothing at all for the service.

More importantly, the desire to extract extra profit from customers is a large part of what has led to the proliferation and inflation of bank charges. If a bank cannot charge customers a monthly fee for using their account, one way they get around it is by charging a fee for the sort of honest mistake which happens quite regularly; not only fees relating to overdrafts and rejected payments, but also returned letters, mistaken transfers, and suchlike.

But if his diagnosis is correct, I'm not so sure his cure is. While it is true that explicitly charging for accounts will allow banks to charge for their core services, rather than having to make most of their profit at the margin, it doesn't seem so clear that that will lead to better behaviour. Just this year, for instance, the Bank of America, which already charges fees for most services from its accounts such as withdrawals, transfers, and cheque cashing, attempted to introduce a $5 monthly fee for having a debit card.

Banks take advantage of the reluctance of customers to switch by nickle-and-diming on anything they can get away with. While they may find it easier to do so if the charges are less obvious, the last thing they need is state intervention to allow them to charge even more. Let  what little competition there it have the intended effect.

Andrew Bailey (R) presents a giant novelty £10 note to Sarah Darwin. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

ELLIE FOREMAN-PECK FOR NEW STATESMAN
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Craig Oliver, Cameron's attack dog, finally bites

A new book reveals the spiteful after life of Downing Street's unlikely spin doctor.

It must be hard being a spin doctor: always in the shadows but always on-message. The murky control that the role requires might explain why David Cameron’s former director of communications Craig Oliver has rushed out his political memoirs so soon after his boss left Downing Street. Now that he has been freed from the shackles of power, Oliver has chosen to expose the bitterness that lingers among those on the losing side in the EU referendum.

The book, which is aptly titled Unleashing Demons, made headlines with its revelation that Cameron felt “badly let down” by Theresa May during the campaign, and that some in the Remain camp regarded the then home secretary as an “enemy agent”. It makes for gripping reading – yet seems uncharacteristically provocative in style for a man who eschewed the sweary spin doctor stereotype, instead advising Cameron to “be Zen” while Tory civil war raged during the Brexit campaign.

It may be not only politicians who find the book a tough read. Oliver’s visceral account of his side’s defeat on 24 June includes a description of how he staggered in a daze down Whitehall until he retched “harder than I have done in my life. Nothing comes up. I retch again – so hard, it feels as if I’ll turn inside out.”

It’s easy to see why losing hit Oliver – who was knighted in Cameron’s resignation honours list – so hard. Arguably, this was the first time the 47-year-old father-of-three had ever failed at anything. The son of a former police chief constable, he grew up in Scotland, went to a state school and studied English at St Andrews University. He then became a broadcast journalist, holding senior posts at the BBC, ITV and Channel 4.

When the former News of the World editor Andy Coulson resigned as No 10’s communications director in January 2011 because of unceasing references in the press to his alleged involvement in the phone-hacking scandal, Oliver was not the obvious replacement. But he was seen as a scandal-free BBC pen-pusher who exuded calm authority, and that won him the job. The Cameron administration, tainted by its association with the Murdoch media empire, needed somebody uncontroversial who could blend into the background.

It wasn’t just Oliver’s relative blandness that recommended him. At the BBC, he had made his name revamping the corporation’s flagship News at Ten by identifying the news angles that would resonate with Middle England. The Conservatives then put this skill to very good use during their 2015 election campaign. His broadcast expertise also qualified him to sharpen up the then prime minister’s image.

Oliver’s own sense of style, however, was widely ridiculed when he showed up for his first week at Downing Street looking every inch the metropolitan media male with a trendy man bag and expensive Beats by Dre headphones, iPad in hand.

His apparent lack of political affiliation caused a stir at Westminster. Political hacks were perplexed by his anti-spin attitude. His style was the antithesis of the attack-dog mode popularised by Alastair Campbell and Damian McBride in the New Labour years. As Robert Peston told the Daily Mail: “Despite working closely with Oliver for three years, I had no clue about his politics or that he was interested in politics.” Five years on, critics still cast aspersions and question his commitment to the Conservative cause.

Oliver survived despite early wobbles. The most sinister of these was the allegation that in 2012 he tried to prevent the Daily Telegraph publishing a story about expenses claimed by the then culture secretary, Maria Miller, using her links to the Leveson inquiry as leverage – an accusation that Downing Street denied. Nevertheless, he became indispensable to Cameron, one of a handful of trusted advisers always at the prime minister’s side.

Newspapers grumbled about Oliver’s preference for broadcast and social media over print. “He’s made it clear he [Oliver] doesn’t give a s*** about us, so I don’t really give a s*** about him,” a veteran correspondent from a national newspaper told Politico.

Yet that approach was why he was hired. There was the occasional gaffe, including the clumsy shot of a stern-looking Cameron, apparently on the phone to President Obama discussing Putin’s incursion into Ukraine, which was widely mocked on Twitter. But overall, reducing Downing Street’s dependence on print media worked: Scotland voted against independence in 2014 and the Tories won a majority in the 2015 general election.

Then came Brexit, a blow to the whole Cameroon inner circle. In his rush to set the record straight and defend Cameron’s legacy – as well as his own – Oliver has finally broken free of the toned-down, straight-guy persona he perfected in power. His memoir is spiteful and melodramatic, like something straight from the mouth of Malcolm Tucker in The Thick of It. Perhaps, with this vengeful encore to his mild political career, the unlikely spin doctor has finally fulfilled his potential. 

This article first appeared in the 29 September 2016 issue of the New Statesman, May’s new Tories