Select Committee on Treasury Minutes of Evidence

Examination of witnesses (Questions 40 - 59)



  40. Which is over three times what it costs.
  (Mr Dalton) I think Mr Cruickshank said that he calculated the cost of transactions was 30p.

  41. Yes.
  (Mr Dalton) I am not sure whether the methodology was absolutely correct there because if we have 85 per cent of our transactions which are no charge, which we do, then the one pound charge for the 15 per cent would not be likely to cover the total cost of all the transactions.

  42. It is rather surprising that having had this report now for some weeks neither of you seem to have done an analysis when this is a significant conclusion of the report.
  (Mr Dalton) I should like to say that we have done an analysis and the fact is that the cost of 30p applied to only 15 per cent of the transactions does not cover the costs of the ATM network.

  43. It does not.
  (Mr Dalton) No.

  44. Mr Ellwood, you have just surprised us with your announcement of a 50p charge from the beginning of next year. That is still substantially above what Mr Cruickshank is saying.
  (Mr Ellwood) We do not necessarily accept Mr Cruickshank's figures entirely. There are many, many ways you can calculate the cost of a transaction when there are so many transactions going through. We put the cost closer to 38p but one accepts that there are different ways of allocating the costs of things like ATMs.

  45. Mr Cruickshank is actually saying that the marginal cost is 15p. Thirty pence is when you put everything in.
  (Mr Ellwood) It is quite legitimate to put "everything in" to use your words; things like depreciation on equipment and the maintenance of the kit. That is quite legitimate. The marginal figure is not the relevant one. The relevant one on Mr Cruickshank's figures is 30p. I am just saying that on the way we have done the arithmetic it is a little higher than that.


  46. Why did you announce 50p if you say 38p is a fair figure?
  (Mr Ellwood) Because we need to make a profit. Thirty-eight pence is the cost, so 50p is the charge. Not only will that create a small profit for us, but hopefully it will encourage new competitors to come into the market and that is where the market is going, certainly that is where the market has gone in the States with very competitive levels, people vying for higher volumes. It is really a judgemental thing. We are saying not 30p but 38p. There is not a huge difference but we think the cost is higher than quoted by Mr Cruickshank.

Mr Beard

  47. Would it be fair to say that the outcry over these charges has really surprised you and now you are having to react in an emergency situation? Is that not fair?
  (Mr Barrett) It is fair comment. I was surprised that something which was in the aggregate as customer friendly as this set of changes would raise angst. In fact the net of these changes from a policy point of view cost us money. Whichever marketing genius dreamt up the term "disloyalty fees" should be working somewhere else. We decided to do something which cost us money because it was customer friendly on several fronts. It was a complicated story to get across but the facts of the matter are that this series of changes will mean less money in our pockets and more money in the pockets of consumers than the system yesterday. Therefore, inasmuch as it was positive for the UK consumer in the aggregate and will create behaviours and incentives in the system to improve it even further, I should have thought we should have got applause frankly.


  48. You think you should have had applause, do you?
  (Mr Barrett) I should have liked it, but I am a realist.

Mr Ruffley

  49. You said it has cost you money. What has it cost you in terms of your bank's reputation?
  (Mr Barrett) First of all let me acknowledge whether I like the institution being raked over the coals and the answer is no. We worry a great deal about our image and reputation so of course it hurts. You do have to keep it in perspective; at least I do, perhaps you do not. I remind myself that in the latest spate of things the changes we made affected three per cent of our customer base; 97 per cent was untouched. I remind myself that is one per cent of our sales, etcetera. It is a fact of life that it is easier to write the emotionally laden story than it is to respond to it. We are learning from that. I do not like it, no, and I am going to work hard to turn that around. I am going to work hard to have people understand that what we are trying to do is in the best interests of customers, employees, shareholders and the community. In doing that, from time to time I have to make choices and I should like to be seen to be reasonable when I am doing that. Can we do better? Yes. Are we very good at public relations? No, clearly, because if it is like the ATM issue, if you are doing something which is very customer friendly and it ends up backfiring on you, then you are clearly not very good at the way you are communicating it and we have resolved as a management team, that we are going to do a better job on this because we are doing a lot of good things and we are not getting the recognition for it. Obviously I shall work harder on that.

  50. A lot of your rural customers were pretty appalled by the announcements your bank has made recently. Can I take the statement you have just made as you saying sorry to those customers? Is that an apology? It sounded like one.
  (Mr Barrett) It is not an apology. Do I regret the fact that I cannot keep 100 per cent of my customer base happy at all times? Of course I do. I am forced, as indeed are other suppliers of services into those communities, be they health, medicine, transportation, post offices, stores, butchers ... These phenomena of migratory patterns which are causing difficulties for low populated remote communities are very real and it is poor consolation to the people who are inconvenienced in those communities, but my obligations are to run a business which improves its productivity so that I can do the best for the overwhelming majority of my customers. Running unviable operations, being cross-subsidised by our operations in more populous regions, is not sustainable and it is an unlevel playing field. We all applaud competition. The Cruickshank report is all about competition; we applaud that but there are consequences associated with it.

  51. We are going to move onto rural closures a bit later. Can I take it that you are expressing regret but not sorrow?
  (Mr Barrett) I regret inconveniencing one customer but the practical reality is that I cannot sustain unviable operations and improve the productivity of the company.

  52. May I move on to cash machine charges in the context of everything which is going on in your bank? What will the level of surcharge be? Can you tell us today?
  (Mr Barrett) What will the price be?

  53. Surcharge for non-bank customers.
  (Mr Barrett) Our ingoing position was one pound.

  54. Any lower? Any bids for anything lower?
  (Mr Barrett) I shall see. Competition is alive and well. I have to decide on what the competitive dynamics of alternative offers are.


  55. Bidding has started there.
  (Mr Barrett) You have to give me time to reflect on it.

Mr Ruffley

  56. On that point, you have known you would be coming here for a while, yet you are telling your customers and this Committee and the whole world that you are not going to decide the level of surcharge until next January. Why?
  (Mr Barrett) I did not say that. I said at the moment it is one pound. I am saying that prices are subject to revision continuously. Therefore if competitive forces mean that one pound is not sustainable as a value proposition for my customers, I shall either lower it or I shall exit providing that product. That is what businesses do.

  57. Why did your spokesman say that one pound was merely a stake in the ground?
  (Mr Barrett) He meant by that, that that is the opening bid and that competitive forces were likely—and it is proven today; he was actually quite prescient. What he said was that it was an opening stake in the ground but that the interplay of competition would likely drive the price down and it has. Just as our movement to eliminate disloyalty fees has now had contagion in the market, so now millions and millions of UK customers are no longer paying something as a result of a competitive action by Barclays. Different rivals will take different moves and then they will either be emulated or not or they will suffer the consequences or not.

  58. Let me tell you why it is very important for customers of yours in rural areas. You must have some working definition of a rural customer. How many rural customers are going to have to go to post offices now and post office cash machines now as a result of your bank closures?
  (Mr Barrett) A couple of hundred thousand.

  59. How many cash machines are you now planning to instal in rural post offices and on what timescale?
  (Mr Barrett) Of the 171 branch closures we announced, 110 of those already have another financial institution in the market so no problem there. The major issue for the rural customer—given contemporary banking; you do not have to surf the net to do banking, you can do it on the telephone—is their calls on cash. We have now signed a national agreement with the Post Office, which will improve the viability of post offices remaining open and within two weeks those customers will now not be disadvantaged on encashment of cheques. We are trying to respond through initiatives like the Post Office. We test marketed this in Cornwall. Do I wish we had had it in place before we did the closures? Yes. There were many factors, which I shall not go into because they would bore you, but the relationship is not a non-trivial issue and the Post Office has been very good with us. Then we asked whether it could be accelerated.

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