E is a simple way to increase competition in banking: unleash the supermarkets. Only they have the firepower, brand and distribution to grab a meaningful market share in basic retail financial services quickly. So it was heartening to hear from Phil Clarke, Tesco’s promising new boss, that boosting his banking offering is one of his priorities. Forget about the Independent Commission on Banking and other top-down, politically-contrived pro-competition reforms: if the supermarkets were to capture just five per cent of the retail banking market over the next few years, the landscape would be utterly transformed.
Setting up a new bank based on the branches that Lloyds will have to sell – or perhaps merging these with another small player – would only create more of the same. But supermarket banks will be very different beasts. The key for Tesco is to keep it simple and introduce proper customer service delivered via 24/7 supermarkets and online, tapping into Clubcards and the rest of its well-honed infrastructure. There are huge cross-selling opportunities, billions of pounds in deposits to be scooped up, and hundreds of thousands of mortgages waiting to be written.
So far, Tesco’s banking unit remains small, with profits up 5.6 per cent to £264m and revenues improving by 6.9 per cent to £919m last year. But it is well-capitalised with a Core Tier I ratio of 15.9 per cent, higher than its bigger rivals, while its Fixed Rate Saver had scooped up £397m by the end of the financial year, 40 per cent more than expected. The potential is there, especially as the supermarket enters legal services and conveyancing. A small section of the middle classes hates supermarkets – but most of the public loves them and trusts them more than they do traditional banks. For the sake of consumer choice, let us hope that Phil Clarke can pull it off.
TIME TO BE A KILLJOY
Remember December? It snowed, the country’s pathetic infrastructure ground to a halt and millions of people grabbed the opportunity to take lots of extra paid holiday. The result: snow reduced GDP by 0.5 per cent, according to the Office for National Statistics. Let us hope a similar shock does not hit the UK in the second-quarter as a result of the looming 11-day weekend. Millions of canny workers have booked three days off and are about to celebrate the longest bank holiday in history.
Holidays are great, of course, and everybody needs time off. But at the risk of being a killjoy, there will be a price to pay for the fact that so many people are taking so much time off at the same time. April will turn into a bad month for businesses. Many are shutting down completely during that time, and the permanently lost output will be larger than any gains from tourism or the feel-good factor.
This matters, for two reasons. The first is that any second-quarter GDP weakness is bound to be misinterpreted, and there will be much unnecessary panic about another recession. The bigger problem is that the UK needs to produce much more. We are borrowing – privately and via the government – vast amounts of money to maintain spending levels. This can’t last – and the only way to avoid drastic reductions in consumption is for GDP to go up sustainably. Britain needs to work harder and more efficiently – not take its foot off the pedal at every opportunity.
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