Andrew Tyrie, the backbench Tory MP who has been a perpetual thorn in the side of the Government over the cash-for-honours affair, has a new target: banks. In a paper for the Centre for Policy Studies today, he proposes that the banks should be compelled to provide every account-holder with an itemised statement showing all charges, both explicit and hidden. Crucially, that would include a figure for the interest forgone on current account balances, defined as the difference between the actual interest paid (0.1 per cent for most people) and base rate (5.5 per cent and rising).

It would also include the cost of any “excess” interest paid on loans, mortgages and overdrafts, defined by Mr Tyrie as any charge over and above base rate. Hidden charges levied through, for instance, foreign exchange translations would also be calculated and spelt out.

Customers would for the first time discover what they really pay for their banking services, says Mr Tyrie, who was an adviser to chancellors Lawson and Major. The increased transparency would give account-holders a much clearer idea of how much they were really paying for individual services, while shining light on some of the more weaselly terms and conditions. It would also enable customers to shop around more easily and make valid price comparisons.

Mr Tyrie does not do the sums, but a typical household could easily be paying bank charges, by his definition, of £500 to £1,000 a year or more. That will shock those who mistakenly believe they enjoy free banking in Britain.

The high street banks, already feeling scratched by thickets of regulation, will hate this proposal. But the paper does go to the heart of why the public feel so badly served by our financial institutions. Banking is an industry with a good story to tell: it employs hundreds of thousands of people on good salaries, pays billions in taxes, helps to keep the trade balance positive, stands up well to international comparisons, provides a secure and reliable system of financial plumbing for the whole country, and is one of the few UK industries which leads the world.

Yet banks are sometimes regarded as little better than institutionalised racketeers, mistrusted because their charges are so mysterious and opaque. That is because their tariffs so little reflect the underlying cost of the services provided. There are cross-subsidies galore between product categories and between customers. The well-informed, the nimble and the disloyal get great deals. The passive, uninterested, loyal majority pay over the odds.

It is this mismatch which has got the banks into so much difficulty, first on credit card penalty charges and now on unauthorised overdraft fees. One consumer group estimates that one million people have reclaimed or are in the process of reclaiming bank charges after the Office of Fair Trading’s suggestion that the fees were unfair. The banks must be allowed to make a decent return on capital. But they have brought the present customer revolt on themselves by paying little attention to underlying costs when pricing their services.

We must prepare for the worst

Only a quite marked and immediate deterioration in consumer confidence is likely to save us from at least one more interest rate rise this year. The question for borrowers, savers and the Bank of England is whether that may just be starting to take place.

Certainly many households are beginning to feel the pain of the four interest rate rises over the past ten months. Many mortgage bills, which are set annually in the spring, have only just gone up.

People remortgaging are discovering the unpalatable truth that the deal they are being offered this time around is significantly worse than last time.

A significant slowdown in consumer spending will be needed to convince companies that they cannot afford to raise prices, and so convince the Bank of England that 5.5 per cent is, after all, as far as it needs to push.

The doves will seize on trading results from Next as evidence that shoppers are feeling the pinch. The market took a grim view yesterday, marking the shares sharply lower.

But the dismal sales figures for May seem much more likely to be about the suddenly cold and wet weather, which dulls demand for summer clothing, rather than a sudden permafrost on people’s wallets.

Anecdotally, some retailers of high-value items such as furniture and holidays are reporting tough trading since Easter, but for the most part, consumer demand, though volatile, seems to be holding up well.

Prices in the short sterling market have for some time been pointing to base rate hitting 5.75 per cent. Belatedly, the majority of City economists came into line yesterday. The downturn in energy prices, though helpful, will not be enough.

Borrowers should brace themselves for the worst, probably just in time for the summer holidays.

Warts and all

Jonathan Compton, the maverick fund manager behind Bedlam Asset Management, likes nothing better than to tweak the tail of his peers in the mainstream investment industry. But they could usefully learn from his latest project, the launch of a planned £100 million investment trust, Cherry Picker. It promises to post every single share trade it makes on the Bedlam website. For the first time investors in an investment trust will be able to understand every twist and turn in their fortunes. Each coup, each gaffe, will be laid bare, alongside some explanatory narrative.

The only impediment to 100 per cent transparency is that Bedlam reserves the right to stay schtum till it completes a position. Mr Compton doesn’t want the price moving against him halfway through a phased purchase or disposal. Fair enough. If only the big batallions in fund management were a fraction as open. It might even help them to make better investment decisions. Having to articulate in a couple of hundred words in public why a share transaction makes sense is a good discipline and might save the professionals from many a costly mistake.

The record $72.8 million paid for Mark Rothko’s White Center (Yellow, Pink and Lavender on Rose) at Sotheby’s in New York speaks volumes not just about soaring wealth, but confidence that the new generation of the super-rich is here to stay – to keep the abstract art market bubble inflated long into the future. The Greater Fool Theory can apply to art as well as to dot-com stocks.

patrick.hosking@thetimes.co.uk

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