Finance · 19 September 2017

Government and EU agree measures to resolve RBS state aid commitments

A £835m package of measures to improve business banking follows the RBS bailout
A £835m package of measures to improve business banking follows the RBS bailout

The UK government and EU Commission have agreed in principle a plan to resolve Royal Bank of Scotland’s (RBS) state aid commitment, with a package of measures designed to improve Britain’s market for business banking.

It is hoped the measures will benefit small UK firms by offering greater choice and better deals on banking services, and address disruptions in the country’s banking system caused by taxpayer support for RBS.

The value of the measures is thought to total around £835m and consolidates previous plans into two distinctive and enhanced measures.

A £425m Capability and Innovation Fund, made up of 15 different grants, will allow eligible challenger banks and financial service providers to compete for increased business banking capacities. Operated by an independent body, the fund will award grants ranging from £5m to £120m.

A further £350m will be used to encourage small businesses that previously banked with the parts of RBS that are required to divest at the end of 2017 (referred to as Williams & Glyn) to switch their accounts to eligible challengers.

Of this £350m, £225m will be paid challengers in the form of “dowry” payments to be used to incentivise business owners to switch accounts, £50m will be allocated to facilitate the switching of loans and £75m will go to cover RBS customers’ switching costs.

The government has said that full details of the measures, including the eligibility criteria for challenger banks, will be announced later in the autumn. The fund is intended to allow for the switching of around 120,000 SME bank accounts.

Commenting on the agreed measures, economic secretary to the Treasury, Stephen Barclay, said: “The announcement today will help boost competition in the business banking market and marks another significant milestone in resolving a major legacy issue at RBS.”

The government will now work with the EU Commission to work out the next steps for implementing these measures, with the Commission expected to adopt a formal decision of the details under EU rules to do with government-backed aid.

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ABOUT THE EXPERT

Fred Heritage is deputy editor at Business Advice. He has a BA in politics and international relations from the University of Kent and an MA in international conflict from Kings College London. He previously worked as a reporter at Global Trade Review magazine.

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