By David Prosser
I write about small business, entrepreneurship and exciting companies
Should Britain’s entrepreneurs brace themselves for new fees that will see them charged for holding cash on deposit at their banks? Even before the Bank of England’s Monetary Policy Committee announced a cut in the base rate to just 0.25 per cent this month, leading banks were warning ever looser monetary policy might force them to introduce negative interest rates. Now that prospect is becoming ever more likely.
NatWest, the retail bank owned by Royal Bank of Scotland, has already warned its business customers that negative interest rates in the marketplace could be passed on to them. “Global interest rates remain at very low levels and in some markets are currently negative,” the bank told its customers. “Dependent on future market conditions, this could result in us charging interest on credit balances.”
That sounds like an outlandish proposition – business customers with funds on deposit at their banks have got used to rock-bottom interest rates since the financial crisis, but the idea they might actually be charged interest on cash balances represents a watershed. However, negative rates are now a very real prospect – across much of Europe, where central banks including the European Central Bank have already taken base rates below zero, business customers are already being charged for the privilege of holding cash on deposit.
Small businesses know too that they represent a vulnerable target. The UK’s high street banks have long offered significantly better deals to their retail customers as standard, while their larger corporate clients have been able to negotiate individual arrangements. Stuck between the two, however, small businesses have often been over-charged, damaged by unfair terms and conditions, and been deprived access to conditions.
So much so that the UK’s Competition and Markets Authority, the regulator which has just announced new measures targeting the banking industry following a long investigation into its practices, has singled out small business customers as being in particular need of protection.
The Federation of Small Businesses is urging its members to stand up to banks offering them negative interest rates by taking their custom elsewhere. “We would encourage small firms themselves to take action and consider whether it’s worth switching to a more competitive business current account,” says FSB national chairman Mike Cherry.
However, while this might be an effective defence if only a handful of banks move towards negative rates, it won’t offer much protection if the sector moves en masse.
In fact, unlike retail customers, small businesses already pay charges for current account services from their providers – and therefore might have a better claim for being protected from negative rates, were it not for public opinion.
This represents another reason for small businesses to shop around more assiduously for a current account provider, particularly given the emergence in recent years of challenger banks targeting the small and medium-sized enterprise market, including Aldermore and Shawbrook, for example.
The FSB is one partner in the Business Banking Insight initiative, designed to help small businesses compare and contrast business current accounts – and to switch – via a single platform.
What does seem unlikely, however, is that a negative interest rate policy will encourage small businesses to hold less cash. One purpose of this type of monetary policy approach is to persuade people to spend their money – and therefore to get cash into the economy. However, recent surveys of small business confidence suggest optimism levels are now at a rock bottom – and that many small businesses are completely unwilling to take the risk of investing their spare cash.