Members present:
              Mr Giles Radice, in the Chair
              Mr Jim Cousins
              Mr Edward Davey
              Mr Michael Fallon
              Mr David Kidney
              Judy Mallaber
              Mr James Plaskitt
              Mr David Ruffley
              Sir Michael Spicer
                       MEMORANDUM BY HM TREASURY
                       EXAMINATION OF WITNESSES
                 MISS MELANIE JOHNSON, a Member of the House, Economic Secretary, and
           MR WILLIAM LEA, Adviser, Financial Services Regulation Team, HM
           Treasury, examined.
        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
        (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.
        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 exclusion tackled.
        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 fraud.
                               Mr Beard
        463.     Can you explain the distinction between the Universal Bank
  account and the basic bank account and the basic accounts that the banks are
        (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
        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.
                               Mr Kidney
        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 way
  -in 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 it basically.
                               Mr Fallon
        472.     It sounds a very basic account!
        (Miss Johnson) Yes, it is an extremely basic account.  That is what I was
        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.
                              Mr Ruffley
        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 Four?
        (Miss Johnson) The issue that has been clearly identified is that people
  basically do not choose to move their bank accounts around.  There is 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 cause - and that is another phrase you have used, that you want to
  get to the root cause and not have superficial solutions - the 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 done - and 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 reporting on.
        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 taken.
        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 Government - and you
  are the Minister; never mind what DeAnne Julius is saying - you 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.
        480.     What is the timescale within which you will make some
  response to DeAnne Julius?  You say in April she will report.  Are you going
  to get on with it, assuming you are still in power?
        (Miss Johnson) We will be getting on with it as quickly as we can, but
  obviously we will have to see what is in the report at the end of April.  It
  would be foolish of me to give you a definitive timetable at this moment,
  because only when we see the scope of what is being suggested and any answers
  that may be suggested will we able to predict what the exact timescale will
  be.  But again, we are keen to see this progress rapidly.
                               Mr Davey
        481.     Minister, would you consider withdrawal from a cash machine
  an everyday transaction with a bank account?
        (Miss Johnson) Yes, I think so.
        482.     Could you therefore answer me why in the consultation paper
  on Standards for Retail Financial Products the CAT standard for basic bank
  accounts does not include free withdrawals from cash machines?
        (Miss Johnson) What we are putting out today is for discussion and
  consultation.  We will welcome people's suggestions on ways in which they
  think other things might be needed in this, if that is appropriate.
        483.     But Minister, on page 55 of your consultation document you
  say about basic bank accounts on charges that there should be "no one-off or
  regular charges for everyday transactions."  You told me that you considered
  a cash withdrawal from an ATM, a cash machine, an everyday transaction. 
  I agree with you.  Why then are you proposing in your consultation paper to
  allow banks with a CAT standard for a BBA to charge for those withdrawals? 
  That is your proposal.  You published the document.
        (Miss Johnson) Yes, and it is for discussion and it is for people's
  input, so it is not a finished piece of work.  That is why we have put it out
  for consultation.  What we have at the moment is a situation where you will
  only pay for using an ATM in certain limited circumstances, as I was
  explaining earlier on.  The effect of the debate around Cruickshank, the
  public pressure on ATMs and the measures that we have taken has been that ATM
  withdrawal is free for the vast majority of consumers at the vast majority of
        484.     But you are not proposing that with respect to CAT standards
  for basic bank accounts, are you?  Am I right?
        (Miss Johnson) Yes, but that is an item for further discussion.  We would
  welcome your views on it.
        485.     Let me give my views, most strongly, on behalf of my
  constituents.  My constituents, as indeed do you, consider withdrawal from a
  cash machine, an ATM, to be an everyday transaction.  But you are not
  proposing that a CAT BBA should include free cash withdrawals.  I would
  suggest to you that most people would consider that that ought to be free.
        (Miss Johnson) They will be free from charges.
        486.     That is not what it says on page 54.  It only says that
  withdrawals will have to be free over the counter.  There is some discussion
  of buffer zones, because there is a minimum withdrawal from a cash machine of
  sometimes 10, but it is not clear in the CAT standard for BBAs which you
  published yesterday, or maybe you gave to the press at the weekend, that cash
  machine withdrawals should be free.
        (Miss Johnson) We published it this morning, as I am sure you are aware. 
  It says "no one-off or regular charges for everyday transactions".
        487.     Are you tell me now, because it does not appear to be the
  case when you define that on page 54, that that includes ATM withdrawals from
  cash machines?  If that is your line, I am delighted.
        (Miss Johnson) It is a question, is it not, of the inter-relationship
  between that and the statement "Account holders must be able to use the
  following", cash machines, and a number of other outlets.  My understanding
  of what we are proposing at the moment is that we should have no regular
  charges for everyday transactions.
        488.     You are looking at page 55.
        (Miss Johnson) I have page 53.
        489.     Turn to page 54.  Paragraph 9 - I have read it two or three
  times, but I think it is phrased interestingly - does not make it clear at all
  that all withdrawals from a cash machine from accounts that have the  CAT
  standard would be free.
        (Miss Johnson) What it says is, as you have read yourself, that account
  holders should be able to withdraw all their money free of charge either by
  free withdrawals over the counter or through access to a buffer zone, and it
  goes on to talk about the minimum withdrawal from a cash machine of 10.  It
  says, "accounts which do not provide free withdrawals over the counter should
  offer individuals a buffer zone, to enable them to withdraw their last penny
  via a cash machine."  That is what the buffer zone idea is.
        490.     But it does not say that it would be free.  The free
  withdrawals relates to withdrawals taken over the counter.
        (Miss Johnson) We are talking about the fact that they will be free from
        491.     Maybe you can drop us a note on this.
        (Miss Johnson) I certainly can.  I will be very happy to do so.
                               Mr Davey
        492.     Can I take you on to money transmission systems.  You may be
  aware that the British Retail Consortium in relation to your proposals that
  OFT should have a regulatory position over this have said that they are not
  convinced that the modus operandi of the OFT is appropriate for non-
  competitive environments such as money transmission.  They are worried about
  the powers.  Can you address these concerns?  Will the OFT have sufficient
  powers and be able to devote sufficient time to ensuring there is competition
  in money transmission services?
        (Miss Johnson) Yes is the answer to your question, and I am very
  confident that it will do.  I think it is important just to remember what the
  issues in terms of competition problems in the payment systems were that were
  identified and, just to run through them quickly, they were things like poor,
  outdated government structures; lack of effective competition between the
  schemes; anti-competitive restrictions on access; anti-competitive,
  inefficient wholesale price; lack of innovation; slow and inflexible service;
  poor transparency; and an ineffective framework for government intervention. 
  What we are doing with the new regime is giving the OFT new powers which will
  enable them to conduct competition investigations into the provision of
  payment services, they will be able to investigate complaints about
  competition in payment services, they will be able to collect information
  about the way those payment systems are working, and they will be able to
  enforce rules.  They will establish an initial set of rules which is aimed at
  ensuring price transparency, efficient wholesale pricing, and fair, reasonable
  and non-discriminatory access to payment systems.  We are resourcing the OFT
  specifically for the payment systems issue, because I think that is also
  something that needed to be addressed, and they will have specific duties in
  relation to the exercise of their new powers.
        493.     You said the OFT would have certain powers to collect
  information.  Can you confirm that they will have full powers to collect full
  information on the cost structures of the payment systems operated by the
        (Miss Johnson) They will be able to gain information that is necessary
  for them to be able to do their own job and to make sure that control of the
  payment systems cannot be abused.  They are also going to have strong
  enforcement systems.  That is another aspect of it.  They will be able to tell
  providers what they have got to do to bring a breach of the rules to an end. 
  They will be able to specify the conditions, including the price, upon which
  a new entrant might be granted access to a payment system.  They will also be
  able to impose financial penalties to encourage compliance with the new rules.
        494.     Minister, that sounds like a long way of saying no to my
        (Miss Johnson) Far from it.
        495.     I asked you a very clear question about cost information, and
  one of the key concerns that many people have, looking at the payment system,
  is that a lot of the costs are hidden, and the experience of the regulators
  in other industries is that unless they have specific powers to go after the
  information on those costs, they cannot promote competition and prevent
  monopoly.  My question to you is: can you reassure this Committee that on the
  specific issue of costs, the OFT will have sufficient powers to go after that
        (Miss Johnson) Yes, and I was trying to expand on the ways in which they
  will have the ability to go after that information and to enforce their
  decisions when they have gone after that information.  The answer is a very
  categorical yes.
        496.     Can you just explain to the Committee then why you went for
  the OFT solution rather than PayCom as proposed by Cruickshank?
        (Miss Johnson) We have a system at the moment where we have a number of
  regulatory bodies already alongside the Bank of England who are dealing with
  payments issues.  There is the FSA itself and the Financial Ombudsman as well. 
  We felt it was probably better to give the powers to an existing body.  Of
  course, the OFT has significant expertise in this sort of area because they
  have dealt with competition more widely, and competition issues, indeed, in
  the financial services sector explicitly as well in the past.  So there are
  issues and experience there in common with their present role.  It fits in
  with their remit to deal with competition in all sectors of the economy.  All
  in all, we thought there was a very good fit, and I have to say that
  Don Cruickshank agreed with us on that, and said, if I can just read what he
  said, "The Government proposals for payment systems are the final piece in the
  jigsaw to deliver competition in banking markets.  The introduction of new
  rules and new powers for the OFT should herald a new era of effective
  competition in payment systems, and I fully support the Government's
  proposals."  So he is very much behind us.
                              Mr Cousins
        497.     Minister, I am having great difficulties in studying your
  document which you put out this morning.  I think it is extremely commendable
  of my colleague that in the time available to him he has not only been able
  to read it and study it, but has also consulted his constituents.  It is an
  absolute miracle of modern communications.  What I would like to ask you is
  this.  Is it the Government's intention that consumers of banking products
  should readily be able to make sensible comparisons of the charges to them at
  their particular provider and to compare that provider's charges with other
  providers' charges?
        (Miss Johnson) Yes, you are exactly right, and obviously you have a good
  grip on this, even if you have not managed to consult 100 per cent of your
  constituents this morning on this subject.  It is the case that we want to
  make it easier for people.  They have to be able to understand what is in
  front of them anyway, and at the moment that is difficult.  For example, on
  the credit cards people often do not understand that if they do not pay the
  balance off at the end of the month, interest is charged from the time they
  bought the item rather than from the end of the month when they have not met
  the full repayment on the balance.  Issues like that we want flagged up
  clearly so consumers can see what is going on at the present time with their
  existing provision.  Then they need to be able to compare it, and the
  advantage with the CAT standards and other clear and transparent information
  is that people can make a more ready comparison of one provider with another,
  and therefore make decisions about whether they are getting a good deal as
  consumers or not, and that will drive the competitive competition in the
        498.     It is your intention that the OFT - at the moment it is the
  OFT that will be charged with these responsibilities - will be able to compare
  not merely the charges between different providers, but will be able to look
  at the underlying cost structures within those providers to see how they
  compare with the charges.
        (Miss Johnson) We are aiming for the OFT to have access to things so that
  it can make a very clear diagnostic analysis of what is going on in the
  payment system.  Obviously, if it is to analyse the payment system in this way
  and to come up with effective answers and identify effectively any problems
  that are working in it, it needs to be able to get to the root of the
  information in order to achieve that task.
        499.     Mr Sweeney of the British Bankers Association, who the
  Committee had the advantage of speaking to a week ago, said that, of course,
  costs and charges may not be in any way connected, and the particular banking
  service provider might well decide as a matter of deliberate policy to
  disconnect costs and charges in order to achieve bigger market share for a 
  particular kind of product.  Of course, one accepts that, but notwithstanding
  that, it is the clear intention of government that OFT will be in the position
  of being able to compare the underlying cost structures of banks with their
  charges to deliver those services to consumers.
        (Miss Johnson) Yes, it is.
        500.     I have not had the opportunity of looking at this document in
  detail, but it does seem to me - and I am just trying to confirm that my
  impression is right - that what the Government is proposing is a CAT standard
  for basic bank accounts, the possibility or probability perhaps of a CAT
  standard for credit card accounts, but the document is silent about the
  possibility of CAT standards on normal current accounts as most consumers now
  have them.  Is that right?
        (Miss Johnson) Yes, but, just to make sure you are absolutely clear,
  I think the CAT standards on basic bank accounts and credit cards are on a par
  in the document, that is to say, we are seriously proposing that we do a CAT
  standard in each case.  The detail is obviously something that can be
  discussed and is part of the consultation, but we are thinking it would
  probably be a good thing to do something in both cases.  We are seeking views
  on whether there are applications elsewhere, and again, it would be very
  interesting to have people's views on that.  We have, for example, canvassed
  ideas about whether travel insurance is an area where people would appreciate
  having a CAT standard.  We think there are other areas where they may be
  applied.  At the moment the specific proposals in here are for two areas, but
  we do think there is scope for further applications.
        501.     The Government has an open mind and is willing to listen to
  representations on extending the CAT standard concept to the cheque accounts,
  current accounts and savings accounts that are now normal?
        (Miss Johnson) Yes.  We think there is a role for these things.  The
  evidence on ISAs, for example, has been very good, that about half of ISA
  savings are actually in CAT standarded products, and there is a very much
  higher proportion of people buying CAT standard ISAs direct than there is of
  those buying non-CAT standard direct, which indicates that the consumer feels
  more empowered by the CAT standards for ISAs.  There is good evidence that
  they are effective.  We want to see what other areas the public think they
  would be effective in.  At the moment the two specific proposals in the paper
  are on credit cards and basic bank accounts, but we would be very happy to
  receive suggestions about other areas, including the ones that you have
                               Mr Beard
        502.     On credit cards, Europay International have argued that,
  because they are already regulated at European level, there is no need for
  them to be regulated at UK level.  How do you respond to that?
        (Miss Johnson) The fact is that we are in the UK here, and the evidence
  is that there is not sufficient competition on the credit card side of things,
  so we do not think there is enough evidence to suggest that there should not
  be a UK approach to this issue.  I think all the evidence points in the
  direction of us being right on this.
        503.     Europay again have complained that if the rules for
  membership of the transmission system for credit cards were widened to new
  members, there could be a systemic risk if new members were unable to meet
  their obligations.  Do you agree with that?  What can be done to safeguard
  against it?
        (Miss Johnson) Issues of systemic risk are really matters for the
  Financial Services Authority and the Bank of England.  I do not think there
  is a problem there, but it is up to the FSA in particular to make sure that
  prudentially firms in the financial sector are viable and other parts of the
  financial services sector are viable, and not likely to cause systemic risk
  of some kind.  We think this is a good proposal.  It will drive competition. 
  It may be that those who do not wish to go along with that have their own
  reasons for not doing so.
        504.     So you reject that point.
        (Miss Johnson) I do indeed.
        Chairman:   Thank you very much.