Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 450 - 459)




  450. Economic Secretary, we are sorry to have kept you waiting. You have just sent us this consultative document on Standards for Retail Financial Products. It is quite long, and it seems to me, as we have not read it, it is not worth asking questions on, but if we have any questions, we would like you to come back, please.
  (Miss Johnson) No problem at all.

Mr Fallon

  451. The Cruickshank Report, Minister, is nearly a year old now. Is the banking system more competitive?
  (Miss Johnson) We are in the process of actually taking forward the Cruickshank Report. Perhaps if I could start off by making a few opening remarks about where we are on things in general, it might help to answer your question but also set the scene. We commissioned the report, as you know, because we had concerns about the levels of innovation, competition and efficiency. Following the publication of that report, it is clear that these concerns are justified. The Government has moved swiftly to tackle those problems. Indeed, there were beneficial effects before the report was even published. For example, the public pressure in the light of the emerging conclusions from Cruickshank and the publicity around the double charging for ATM transactions led to the withdrawal of the double charging for ATMs, and we are now in a situation where consumers no longer have to pay ATM charges for the vast majority of their transactions. We sought to implement very quickly two of the key recommendations in the report, and on the day of publication we referred the small business banking services to the Competition Commission, and on the day of the Budget, the following day, the Chancellor announced we would legislate to open up access to payment systems and overseas access charges. We have made considerable progress since then, to come on to Mr Fallon's question. We have established an independent review chaired by Dr DeAnne Julius on whether consumer codes such as the Banking Code are sufficiently delivering benefits to consumers or not, and I am sure the Committee are aware of the concerns expressed about the low level of compliance with the Code. Just before Christmas we published our proposals to give the OFT robust new powers to tackle the competition problems associated with payment systems. I regret the short notice, but we had the option of either publishing before the Committee, which at least gave you the chance to see things, or after the Committee, which would have looked as if we were trying to do something different, but today we published a consultation document on the CAT standards and how we propose to extend those to credit cards and basic bank accounts. I am pleased to say in addition to all of that that the banks have responded to the challenge by me to them to tackle financial exclusion by introducing basic bank accounts which are accessible at post offices. So I believe overall that we have effected a sea change in the competitive environment for banking, and we will be delivering real benefits to consumers, ensuring that they have innovative services, better prices and a greater choice than ever before.

  452. If there has been a sea change, why do the Big Four still have the 70 per cent of the market that they had a year ago?
  (Miss Johnson) I think that is an indication that the problem has to be addressed through the measures that we are taking. We are only now putting into effect some of the things that will change that. I think it is important to recognise that what we are doing is making sure that there is greater transparency in the system, that there is more competition driving things, and that there is going to be less hassle in the future, hopefully, for people switching accounts. All of those problems are being addressed by the various measures I have already outlined in different ways, and as those roll through the system, we will expect to see that percentage come down. We think the fact that it is holding up at that 68 or 70 per cent—I think it was 68 per cent at the time that Cruickshank reported; it is now 70 per cent—is an indication that there is a problem there, and that exactly validates the purpose of having the report and tackling it in the way that we are.

  453. If it is holding up or increasing, there has not been a sea change, has there?
  (Miss Johnson) Obviously now we are in the process of implementing these things. We have made the reference of small business services to the Competition Commission, and they are still looking at that and have not yet reported, so they are not in a position to act yet, and neither are we, because that is still being looked at in more detail. We have announced the arrangements for PayCom with the OFT, and those arrangements will make sure that a lot of the issues about the costs for consumers will be addressed. In terms of the ease of switching accounts, we have the Banking Code's review under way, and DeAnne Julius is looking at the evidence. Indeed, I believe she has written to the Select Committee asking for the Select Committee's comments, which I am sure would be helpful in this process, and she will take evidence. If we find that one of the issues is a difficulty for people in changing accounts, we will expect to see additional competition, and compliance with the codes will address those issues.

  454. You yourself referred to innovation, but one of Cruickshank's most damning conclusions was that "all customers get the same slow service from the banking system." When are customers going to see faster service?
  (Miss Johnson) They will see a faster service speeding up as from now. We already have the ATM charges to demonstrate the effectiveness of the approach that we have been taking. There are no ATM charges now, except for those few ATMs in convenience-type locations. The vast majority, 90 per cent or so, of the network does not carry any ATM charges, and where there are charges, they are advised to the customer on the screen at the time of use so they have the option of not using the ATM. That is evidence that we are already effecting major changes. That was a big issue for consumers, rightly so. We have achieved a change through this process, and we expect to see further changes taking place as the rest of the provision is put into place.

Mr Plaskitt

  455. Can I turn to the Universal Banking Service and ask if the Treasury is satisfied on the progress being made so far in setting the service up?
  (Miss Johnson) We have, I think, had a good response from the banks in terms of providing basic bank accounts, as I said earlier on, and all the main banks now provide a form of basic bank account in response to the challenge that I issued to them following the PAT14 financial exclusion issue. We welcome the fact that on 20 December six of the major banks announced that they would in principle contribute towards Universal Banking Services. Obviously, the basis of the Universal Banking Service is going to be the basic bank account, and we think that is the right way forward. They are going to make their own basic bank accounts available via the Post Office, across post office counters, which will meet our needs for greater accessibility for banking products, particularly for the financially excluded, but also obviously it provides a vehicle for them to get the basic bank accounts out to a wider range of the public, and it meets our desire to have a Post Office-based approach to this issue. So we feel that we have made good progress so far on this.

  456. When do you expect accounts to be available through the Post Office-based Universal Banking Service?
  (Miss Johnson) The whole aim of this is that, obviously, the changes need to be fully in place before the ACT changes in 2003-2005, which is the timetable that has been set on the DSS and benefits side of things. A lot of the basic bank accounts are available now. Some are available via the Post Office. We would expect to see that accelerating fairly rapidly. We are not looking to wait until 2003 to see that in place. That process is already under way.

  457. We understand that the banks that signed up in December have agreed to support it for a period of time. Do we know how long that is?
  (Miss Johnson) Discussions are still going on between the banks and the Post Office, and obviously there is an element of commercial sensitivity and confidentiality about those discussions. I am not aware of any particular issues about the timetable, but I do not think I have anything else to add to what you have said on that.

  458. Do you anticipate ongoing support from these companies, or do you see a point where their support comes out of the system and the Universal Bank and the Post Office itself sustains it?
  (Miss Johnson) I think it would be very nice, and ideally we will get to the position where nobody is financially excluded, that everybody is using a range of at least basic financial services products, including bank accounts, and where this is not really an issue which is of moment for discussion by ourselves, by government, by the public or the press and it becomes a non-issue because it is universally adopted. Obviously we have some way to go on that because we are talking about a significant proportion of the adult population, some 8-10 per cent, who currently do not have access to financial services in this way. It is an issue at the moment, but one that I hope we move away from in time.

  459. What do you think was the main incentive for companies to sign up in support of this service? What is in it for them, in your view?
  (Miss Johnson) The banks have undertaken to meet the issue of financial exclusion and to deliver wider accessibility of basic banking products. It was in recognition of that that they have all made the basic bank accounts available during the course of last year. In order to make them accessible as well, they need vehicles. They need places that these accounts are going to be accessible to people, and clearly the Post Office, with its very much wider network of post offices, rather than bank branches, is an ideal place for them to get those out, and of course, a lot of the communities that post offices are serving are those communities we would also want to reach, those who are less included in financial services products.

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2001
Prepared 13 March 2001