Examination of Witnesses (Questions 460
TUESDAY 30 JANUARY 2001
JOHNSON MP AND
460. Would it be fair to say that these companies
can see in this service an opportunity to recruit customers into
their basic bank accounts?
(Miss Johnson) Yes. It is not necessarily the case
that basic bank account customers are of one ilk. All the evidence
shows that people's circumstances change. People may only want
a basic bank account at one stage in their life but may progress
on to a range of other financial services products, and obviously
there is potentially an interest for the banks in seeing customers
brought into the banking system and brought forward. So it is
not a philanthropic enterprise as far as the banking sector is
concerned. Obviously it does meet our desire to see financial
461. The banks in the earlier session told us
that they would not actually know who was signed up to the Universal
Bank accounts and therefore they could not recruit from it.
(Miss Johnson) My understanding is that their own
bank accounts will be marketed through the Post Office. Perhaps
I can ask if William Lea would comment further on that.
(Mr Lea) I think the main emphasis, as the Minister
said, was on provision of the basic bank accounts, and those basic
bank accounts will be provided by banks and will be a stepping
stone for people on to other financial services. There is provision
also as part of the Universal Bank for a basic money transmission
account. But it is envisaged that the main vehicle will be people
having access to basic bank accounts that will be provided by
the main high street banks, so they will be fully aware if they
are providing those accounts of who has got them.
462. So they have not signed up because they
are philanthropists. They see a commercial interest in this.
(Miss Johnson) I think they have signed up for a variety
of reasons. I think some of that is commercial interest, and that
is reasonable enough. They have accepted the fact that there is
an issue to be tackled on the financial exclusion front, that
people are disadvantaged by not having access to some of these
basic financial services, particularly having a bank account,
and obviously that coincides as well with the interests that DSS
have in providing more benefit payments through bank accounts
because, amongst other things, it will tackle social security
463. Can you explain the distinction between
the Universal Bank account and the basic bank account and the
basic accounts that the banks are providing?
(Miss Johnson) My understanding of this is that they
are going to provide their own basic accounts, but via post offices
as an outlet, and so there will not be any real difference, but
there will obviously be more marketing, I guess, done at the Post
Office about the way these accounts are put out and the availability
of it via the Post Office network. But we hope the banks will
also address this through their own branches and their normal
business too. If people come in wanting a basic bank account and
they happen to go to a bank branch rather than a post office,
I hope and trust that they will get the same offer and the same
service as if they went into a post office to acquire that account.
464. What is the incentive for someone to take
out a Universal Bank account as opposed to a basic account with
one of the main banks?
(Miss Johnson) It is the same. It will be the same
account. What it will do is provide the outlets. We recognise
the fact that there are not branches in all the areas where there
are largely financially excluded members of the population, and
that those areas are probably lighter on bank branches. The Post
Office will provide a number of outlets in areas where other bank
branches may not be located. It provides accessibility for the
accounts, and a higher profile for the accounts in those neighbourhoods
where we think a lot of those people wanting basic bank accounts
will be. In all cases, people will not be able to get overdrawn
with a basic bank account, whether it is a Universal Bank bank
account or one acquired through one of the main banks. That is
the safeguard in this service, amongst other things that the basic
bank accounts will do. One of the key things is that people will
not be able to go into the red.
465. What is gained by having a Universal Bank
over having a basic bank account of the main banks available in
the Post Office?
(Miss Johnson) The advantage is the number of outlets.
We are talking about a massive number of post offices. Obviously,
a lot of those people who are currently receiving their benefit
by giro will hopefully be moving over to basic bank accounts,
and in so doing they will get access to a wider range of ways
of dealing with their money than they would by getting a giro,
and the DSS will be able to cut the undoubted fraud that goes
on on the DSS giro benefit payments, which are difficult to police.
466. I understand that, but I still do not understand
the distinctive feature of the Universal Bank which makes it necessary
compared with the basic bank accounts of Lloyds TSB and the HSBC
and so on being marketed in Post Offices. If they are marketed
in post offices, they are available to the public on just the
same basis as the Universal Bank.
(Miss Johnson) Yes, but there are many more branches
of the Post Office available than there are bank branches, and
where those branches are located is not in the same places either.
So the availability of outlets, the extra marketing and the fact
that quite a lot of the footfall through post offices is connected
with those people, a disproportionate number, who currently do
not have bank accounts at the moment means that that is a very
good vehicle for getting basic accounts out, and it will have
a greater marketing presence by being done through the Post Office
than it will each individual bank doing it on their own, though
no doubt they will be making the basic bank accounts available
through their own branches too.
467. I understand that. I still do not understand
what is the distinction and benefit of the Universal Bank over
and above that.
(Miss Johnson) Why should there be an additional advantage
over and above that?
468. If you have these services, basic bank
accounts marketed through post offices which are dispersed around
the country, why do we need a Universal Bank as well?
(Miss Johnson) The Universal Bank is a concept involving
the main banks signed up to this actually making available their
basic accounts through the Post Office. There is not a separate
entity called the Universal Bank. The Universal Bank is the arrangement
whereby the basic accounts are made available through the Post
Office, and in addition to that, obviously there will be an electronic
transmission account for those who do not sign up to the basic
bank account. We hope and expect that the majority of those currently
without a bank account will be signed up to a basic bank account.
469. Minister, listening to you, when the Government
made its commitment that people will be able to receive their
benefits in cash at the post office free of charge, will it be
compulsory upon them to have a basic bank account in order to
get that commitment fulfilled?
(Miss Johnson) No. It will still be possible for them
to get their benefits either monthly or weekly, as they wish,
and obviously we have given a commitment to that being available
through the Post Office. If they do not decide to opt for a basic
bank account, there will be systems put in place to enable people
to get their benefit paid automatically into a much more limited
form of creature which will enable them simply to draw out the
payment. It will not, however, offer other facilities, as a basic
bank account would, which would allow you to pay cheques and do
a variety of other transactions through your bank account. It
will enable automatic transfer of the money, and people will be
able to go to the post office and draw that out, but they will
not have a slip, as they might do at the moment, to go and get
their benefit. They will not actually have a physical piece of
paper to get that. It will be paid electronically into an account
and be drawn out in that wayin one go, I think is the proposal.
470. It is my understanding that the "creature"
you describe is a basic account offered by the Post Office as
opposed to the basic accounts offered by the participating banks.
(Miss Johnson) There is a difference in the sort of
things that basic accounts do. You can pay cheques into basic
accounts, you can draw money out in different amounts. If people
do not migrate to the basic bank account, the residual arrangements,
which will meet their needs, will be extremely basic, if I can
put it that way, because they will simply allow the money to be
electronically transferred and taken out at the post office in
one go for that particular payment, and that will be the scope
of the arrangements. So it will be much more limited.
471. Will the person be an account holder at
the Post Office for that purpose?
(Miss Johnson) They will be an account holder of the
new arrangements. It is not an account in any real sense of the
word, an account as you and I might understand it, because you
will not be able to do anything except get your benefit out from
472. It sounds a very basic account!
(Miss Johnson) Yes, it is an extremely basic account.
That is what I was saying.
473. Hardly an account at all. Can I return
to the issue of competition. The Consumers' Association said in
evidence to us that fewer than a third of the Big Four bank customers
were satisfied with their service. Given that they now still have
70 per cent of the market share a year on, would you conclude
that that was a market failure?
(Miss Johnson) I think we conclude that there is a
lack of competition in our banking sector, and it is a significant
lack of competition which exists in the banking sector at the
moment. The purpose of the Cruickshank review was to find out
the extent of that, and what the causes were, and as you know,
that report highlighted a number of recommendations. We have taken
all of those recommendations forward, and I think it is important
to say that the Government wants to tackle all of those concerns,
and we have made important steps in doing so. There is the DeAnne
Julius codes review, and the measures that we have taken to improve
consumer awareness of the CAT standards generally. I appreciate
the Committee has not had a chance to look at today's release,
but in terms of CAT standards in the market, certainly the evidence
on ISAs is that people are being significantly helped by availability
of CAT standards in the ISA market. We think that this provides
scope for a greater transparency for the consumer, and therefore
will drive competition, and the essence of our approach is really
to get that greater transparency in there, to get information
available for consumers that enables them to transfer the information
across from one product to another, and compare easily, where
they do not have hidden surprises and charges, and where it is
clear to them that if they want to move, they can move from one
provider to another and are easily able to do so. The measures
we are putting in place will address that, and I am confident
that we will see quite a different picture, with the passage of
time, but obviously there are some issues like the reference to
the Competition Commission which are still in the process of being
considered at the moment. We can only deal with the issues that
arise out of that when we get that information back.
474. You have issued your document today and
there are all these other bits of paper. Why is all this taking
so long, do you think?
(Miss Johnson) I do not think it is taking particularly
long, but one of the issues is that we do want to tackle the root
causes of things. We do not want to simply tackle the superficial
symptom. We want to get underneath that, and in getting underneath
that, we do need to do these things that will address greater
competition and enable consumers themselves and small businesses
themselves to be much more in the driving seat with their financial
services providers, and with the banks in particular in this context.
So obviously there is a whole lot of work going on. The Financial
Services Authority is doing some of this work too, in doing things
like comparative tables of financial services products, which
they will be bringing out later this year. We are tackling the
problems in the payment system as well as trying to reduce the
profits which are being made at the moment which have been identified
in the Cruickshank Report.
475. Economic Secretary, I wrote down what you
said at the start of your remarks. You said of the problems that
Cruickshank identified that "the Government had moved swiftly"
to tackle those problems, and in the light of that statement,
I would just like to see how swift you have been. On Mr Fallon's
observation that 70 per cent of the current account market is
where we are now, and it is roughly where we were at the time
of Cruickshank, and I think you have indicated that the position
may even have got worse, could you just explain to me what steps
you think should be taken to reduce that market share of the Big
(Miss Johnson) The issue that has been clearly identified
is that people basically do not choose to move their bank accounts
around. There are a variety of reasons for that. One of the reasons
is that there may be hassle involved in moving the account around,
and that is something we need to determine the exact scale of.
It is something that the DeAnne Julius review is looking at and
will no doubt be reporting upon. It is one of the issues which
has been flagged up, which is compliance with the Banking Code,
specifically for that consultation which is going on at the moment.
Secondly, it is important that people are able to make comparisons
from one product to another, and actually decide therefore whether
they are getting a good deal or not. I think a lot of people would
be surprised if they were able to make those comparisons now on
the basis of good, clear information. They will be surprised at
the fact that they are not necessarily getting a good deal where
they are at the moment and there may be a much better deal to
be had somewhere. We need to make sure that consumers have better
information, that there is more transparency about it, and that
they are able to make comparisons. There are a variety of ways
in which we are doing that. Obviously looking at the lack of competition
in the money transmission systems through the proposals with the
OFT is one way of dealing with that. The CAT standards is another
way of dealing with that. Getting the small business banking services
looked at by the Competition Commission is a third way of doing
that, and as I say, the codes review as well. So there is a variety
of approaches there, all of which are pinpointing the same purpose,
which is to provide greater competition in the banking sector
and to enable consumers to make better decisions for themselves.
476. That is a helpful shopping list, if I may
say so, but is not the root causeand that is another phrase
you have used, that you want to get to the root cause and not
have superficial solutionsthe real reason that the Big
Four have a stranglehold on over 70 per cent of current accounts
in this country, and it is not getting better, is because they
are flagrantly and deliberately and gratuitously breaking the
ten-day limit within which they are meant to pass information
to transfer re BACS if the customer wishes to move from one of
the Big Four. We have had a year since Cruickshank identified
this problem, and you are telling us that you have another inquiry
or report. Is it not the case that you know what the problem is,
and is it not the case that the Banking Code should actually enshrine
disciplinary measures, in particular financial penalties, for
banks that do not hit the ten-day transfer limit? Is that not
what you should be doing, not giving us more reports?
(Miss Johnson) The examination which DeAnne Julius's
group is doing, which is a group with a lot of expertise in it,
will hopefully gather a lot of information to help us determine
exactly what needs to be doneand I think it is always better
that we do things on the basis of good evidence rather than partial
evidence, and at the moment we only have partial evidence on this.
I agree with you; I think there is a problem about people switching
accounts, but it would be good to know the exact scale of it and
to see what evidence is being brought forward in this connection.
Of course, that group is not reporting some time next year or
the year after; it is actually reporting at the end of April,
so we are not talking about more than a couple of months' examination
of this. They will come back and they will be able to say just
how compliance with the Banking Code is going in a lot more detail,
and there are obviously other aspects to the Banking Code than
this one in particular, although I appreciate your concern that
this is an important one. I share that. We are watching very carefully
to see how that is. There are issues for the group which they
are looking at, which are things like whether the industry is
fully complying with it, whether it is monitored and enforced
effectively, and what the redress is if it is not, but I think
it is also worthwhile pointing out that at the end of it all,
if there is shown to be a problem, one of the issues is clearly
whether voluntary codes are a way forward or not, and if they
are, how strongly they have to be enforced in order to be effective.
I am sure that is something that DeAnne Julius's group will be
477. If I deduce correctly from your response,
it is not the case that you have ruled out financial penalties
for banks that miss the ten-day target. You have not ruled that
out. You can tell the Committee that today. It is on the table
as a potential sanction against these banks that have a stranglehold
on the current account market, mainly because they cause such
hassle to customers by not transferring within ten days.
(Miss Johnson) I think it is a very serious issue.
We are looking carefully to see what comes out of DeAnne Julius's
group on this, and we will be wanting to see effective action
478. Does that mean financial penalties?
(Miss Johnson) I am not being drawn by your efforts
to try and pin me down on specifically what the response is going
to be, but what I am saying is I do entirely share your concerns
about this. We do think that there is a problem here. We would
like to see the exact scope of it and what DeAnne Julius's group
is going to say about it, and we will want to see an effective
answer from the consumers' point of view out of this after the
end of April.
479. I am sorry. You have not ruled out as a
Governmentand you are the Minister; never mind what DeAnne
Julius is sayingyou have not ruled out as a Minister the
possibility of financial penalties and a stricter disciplinary
regime incorporating financial penalties?
(Miss Johnson) We will be looking to see what is effective
in tackling this. I neither rule things out nor rule them in.
It is a question of what is effective. We want to have an effective
answer. We think there is a problem. You think there is a problem.
DeAnne Julius's group will be looking to see what the scope of
that is, and reporting back to us, and when we see the nature
of the problem, we will decide on an effective response to it
and make sure consumers get a better deal.