Whatever the truth of the Tomlinson report - and we will know once the chancellor and the bank have finished their respective reviews of it - Tomlinson does raise at least one point which it is hard to argue with. That is his assertion that the lack of competition in small business banking is as toxic, if not more so, than the lack of competition in consumer retail banking. The latter is much examined, but the consequences of the former are much less so.  However, such un-competitiveness in small business banking could arguably raise greater concerns.  Given that small and medium sized businesses comprise such a large portion of our economy, an inefficient market in funding for those businesses can only have an adverse and pronounced effect on the financial wellbeing of the country at large.

Measures have been taken both by government and by the industry ever since the problem of lack of competition in consumer retail banking was highlighted by the parliamentary commission on banking standards in 2010.  However, in the climate directly following the financial crisis, the commission’s desire to protect the needs of consumers perhaps led it to concentrate too much on reform of consumer lending and finance at the expense of equally well needed reforms in business lending.

The results of the commission’s report are now being seen not only in highly-visible ways such as the much vaunted Account Switch Service, and the government’s support of the ill-fated first attempt at Project Verde, but also in subtler changes in the market. For example, the renewed vigour with which the challenger banks are seeking to grow their customer bases.  Metro Bank, Virgin, Handelsbanken and others as well as established older players such as Nationwide, are seeking to exploit renewed economic confidence by using innovations in customer service and other areas to attract customers disillusioned with the large industry incumbents. However, with their deposits far in excess of those which can be covered by the deposit guarantee scheme, even quite small businesses are inherently wary of the smaller challenger banks.

Nonetheless, that does not excuse the fact that two banks control around half of the small and medium sized business lending market in the UK. There are at least eight or nine financial institutions in the UK of sufficient size to act as the main bank to businesses of 100-500 employees. Those with little foothold in the business lending market would do well to take on the lessons they have learned from fighting for customers in the consumer banking market.  Better use of social media to gauge and anticipate customer needs, deeply integrated mobile apps which make it easy to use any communications channel, and services closely tailored to customers’ wants, are all appreciated by business customers as much as by consumers. More innovation of this kind could potentially go some way towards making some of our other large banks more competitive in the small business lending market. That would be good for the industry but, more importantly, it would the also be good for the economy as a whole.