Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 99 - 119)




  99. Thank you very much for coming today, and particularly for presenting your Memorandum to us. Can I ask you to introduce yourselves for the Hansard writers.   (Mr Murphy) Joint General Secretary, UNIFI, the preeminent finance sector union in Britain.

  (Mr Earls) Joint Head of Research, UNIFI.

  100. Welcome. One of my colleagues said sotto voce that is a long time since we have welcomed trade unions, so doubly welcome to the Committee. Can I start off by asking you about the role of bank branches and if the cost of fair banking for SMEs and if that means less bank branches and a possible decline in quality of service?

  (Mr Murphy) If I can start off, my colleague may come in with some other bits later. We are particularly concerned in all of these matters because our members, uniquely, have three shareholdings, if you like, in the concerns: they are employees; they are customers; and they are very often shareholders as well, so it is a very important issue for us. We have been concerned for some time at the reduction in the number of branches that there are, not only from the primary function of the Trade Union to protect their members' jobs, but also for the impact that it has on service for customers, whether they are individual customers or SMEs. It is our belief that the cuts that we saw through the latter part of the 1990s, there was a lot of hullabaloo in the press when Barclays, for example, closed 170-odd branches in one day—I think incidentally they were just unlucky that they got in last. I do not think they were any worse than anybody else, they just got the worst of the publicity. We found that the public pressure and we hope the pressure that we have brought, and, to some extent, pressure that has been brought on by parliamentarians as well has slowed that number of branch closures up. It still leaves a big problem for people, particularly in rural communities who have been unable to get to local branches for information and advice, and we think that there is a real issue that still needs to be addressed by banks and financial institutions. They do not always appreciate, I think, the difficulties and problems that some people do have in doing their banking. Some people, believe it or not, even today, are still frightened of going into banks, are still concerned about going to talk to people about their finances. They are not sure what they are entitled to ask about, whether they will be told off for doing things in a particular way or whatever. There is a generational issue here as well, that older people in particular like to talk to somebody face to face. Younger people become a little bit concerned, and I think SMEs as well about the confidentiality of going to one branch in a location that might be some distance away. Branches are all very trendy and open plan now, and that is not always the best way for people perhaps to sit down and talk confidentially about their business, so there are a number of issues there that we have had some concern about for some time which we still do not think are being addressed.

Mr Plaskitt

  101. But with the quite rapid growth of telephone banking, internet banking services, you accept that there is going to be a medium term programme of branch closure, is there not, simply because the way people want to do their banking, business is going to reflect the way they live their lives and they will not want to make a physical journey to access their bank, they will do it electronically?
  (Mr Murphy) Contrary to public opinion we are not dinosaurs, we do understand that there is change going on all about us, and our role has always been to be at the centre of that change process. We want to be involved in that change as well but change must take into account all of the stakeholders, not just profitability. I remember when RBS were making their bid for Nat West, and one or two other players were floating around on the outskirts of that, it seemed to be the person who was going to get the prize of Nat West was that predator who was going to sack the most people. It seemed to be predicated on how many branches you close, how many people you get rid of. We recognise that people's banking and financial servicing habits have changed, we have recognised that, but they have not changed so much so rapidly that people do not want branches at all. People want to be able to access the service of their choice by the route of their choice, not being driven into a particular route of service that perhaps the financial institutions want, so we do recognise that there will be change.

  102. But I think you are accepting, from what you say, that the trend, if anything, is going more towards telephone, electronic and away from branch visits?
  (Mr Murphy) For certain elements of people's banking. The banks have made it easier for people to transact business on the phone, the banks have allowed that to happen. We must not forget that 30, 40 years ago, there was only a few things that we could do with our bank accounts. I am old enough to remember the first little hole in the wall card that you could get, from Nat West, as it happens, and it allowed you to take £10 out of your account. Why not £5, why not £15? The bank were determining what service you could have at what time and the banks still continue to do that to a certain extent but consumer pressure has made it clear on banks that they have to do things differently quicker, and people will access through the internet, through telephones, but they also want the ability, on occasion, to go to a branch, they do not want to see branches done away with completely.

  103. I do not think anyone is suggesting that. I am just trying to draw out of you what your view is on what you hope for in terms of the programme of branch closures. It seems to me that the present number of branches is not going to be sustainable over the medium and long term because of the changes in the way people want to do their banking, just matching their banking with their lifestyle. So what sort of criteria are you looking to see banks use when they do make decisions in the future about branch closures?
  (Mr Earls) I would also make the point that it is useful to make a distinction between customer demand and, to a certain extent, customer engineering, how much there is a demand for some of these new services. The key thing is people do want choice, depending on the type of service that they want to conduct and the type of individual that they are. Clearly there needs to be a range of distribution channels and that includes bank branches. We have heard already from the Federation of Small Businesses that some of the advantages of a bank branch is the "valued added" that can be added to the nature of the service and I think that is something that the banks themselves are increasingly starting to recognise.

  104. I think we are making a perfectly valid point about small businesses. I can see that anyone who has a fairly complex relationship with their bank will want physical contact with them and to interface with another human being. The large proportion of people who are just ordinary account holders, the payment in is automatic, most of the payment out is automatic, you do not need to make many branch visits and if you can do it on a Sunday and sort your account out at home on the computer that is a huge attraction, is it not?
  (Mr Earls) It is for some customers.

  105. But is that not going to be a growing proportion?
  (Mr Earls) Indeed, yes. But the point I would make is that more consideration needs to be given than has been the case thus far as to the effect that particular branch closures may have and also into the way in which branch closure programmes are carried out.

  106. One possible option that might help address some of your concerns about branch closures was the notion of shared branches. Perhaps in rural areas, for example, smaller towns, this might be a way forward. Can you clarify your view on this because in your submission to us, paragraph 32, you say, "The shared branch proposal is welcome", but then you go on to make three quite powerful criticisms of it, so I do not really know that I understand what you think about this option.
  (Mr Earls) Clearly, where there is a facility to share a branch and have access, that is better than having no access at all, and also we would want to encourage the industry to look at a range of options that it could explore to help address some of these problems concerning physical access. That said, it would be remiss of us not to point out what some of the problems and concerns that we have in this area.

  107. I think you are saying that you see this as something that is going to happen, and if it does happen -
  (Mr Murphy) It is happening.
  (Mr Earls) We welcome the initiative. The British Bankers Association have already started a pilot, looking at the shared branch concept. We welcome that initiative, although we do have some concerns, which are outlined in our submission about that pilot. The point is that that pilot exercise, which is only taking place in ten places, needs to be monitored and evaluated very carefully to determine whether it meets the objectives to which it is supposed to address.

Mr Fallon

  108. Can I ask you, as I asked the earlier witnesses, about Universal Banking and basic banking services. In your Memorandum I think you comment on Universal Banking and you make some rather interesting points about some of the dangers here, that some of these new entrants might cherry-pick particular types of customer. What is your view on this? Are there people who might use the Universal Bank who would not want the basic banking service. Are they different types of people?
  (Mr Murphy) It is not just a question of people who would not want the basic bank accounts, people who cannot get the basic bank account are really the people that are going to use the Universal Bank. A cynic might say, "The reason why it has not taken off so well now is because it is not a very profitable area of the market", which is why, perhaps, there has not been the push on it, but there are a number of people in this country who cannot access basic financial services and that is something that we all ought to be aware of. There is a role for banks and financial institutions to provide basic accounting for people.

  109. But if that is true, you are suggesting it should be done by the banks and the onus should be on them?
  (Mr Murphy) Yes. They have a social responsibility as well as the rest of us.

  110. So do you not see a slight danger in a separate service being set up called Universal Banking in the Post Office?
  (Mr Murphy) Universal Banking is not just about social exclusion, there is also the role of the Post Offices and the survival of Post Offices in rural communities, so there are a number of important issues there. But at the moment, there are a number of people, I cannot remember the figures offhand, but there are many millions of people who cannot get basic banks accounts as the system stands now. With a Universal Bank, they will at least have a chance of getting something that will give them a bank account of some basic nature.

  111. So you would rather see that happen than the banks widen out their basic banking services?
  (Mr Murphy) I think that debate is finished, with respect. The banks have decided over the years they are not going to do that, and this is a solution that we have come up with as a nation to provide a response to that particular problem, and I think that is the position that we find ourselves in.

  112. On the Universal Banking, you point out a number of the difficulties, you know, that the Post Offices themselves might be closed in the fullness of time, there is a lack of privacy, implications for security and so on. Do you think those issues are resolvable.
  (Mr Murphy) I think they are if we all play a part in trying to resolve them. We have tried to outline in our Memorandum briefly some of the more practical issues as well. But yes, I think those problems are resolvable, but I think the main bulk of the solution to those problems will remain with the banks themselves. Some Government pressure and cajoling has helped to get the Universal Bank established as a principle, but the cajoling has probably got to continue a little bit more in order to get them up and running. There is a danger that you end up with a two-tier banking system. That is something that we would be very concerned about.

  113. Are you involved in helping the government or Post Offices in how the Universal Banking system might actually operate?
  (Mr Murphy) We have, in the past, made submissions as to what our view would be and we have had meetings with ministers about it and we cooperate with other organisations who are involved in say the Post Office or in the provision of the service.

Mr Beard

  114. Turning to the Banking Code, the Banking Code at present is there on a voluntary basis. Do you believe this is an adequate form of regulation, this self regulation?
  (Mr Earls) I think it should be acknowledged that there have been some significant improvements made in the Banking Code. We highlight in our submission some of the concerns we have about the voluntary nature of the Banking Code, concerns which are held by some consumer groups, not least, the National Consumer Council, in their submission to the review of the Banking Code, highlighted a number of concerns which we would share. One of the problems of the voluntary nature is that the Code is not universal so therefore it does not actually apply to all banks. Although the majority of banks sign up to it, not all banks do.

  115. Is the number that do sign up not significant?
  (Mr Earls) I think the majority do sign up, but there are some very high profile brands which are not signed up to the Banking Code. So if you are looking at commitment to things like financial inclusion, which is an industry problem, one has to ask the question, "How do you encourage all of the industry to address that?" The other issue of course is on the Voluntary Code is to do with monitoring and compliance. How do you ensure that people comply with the Code and for those who do not comply, what are the sanctions which would be put in place.

  116. What is UNIFIs view of these matters? Are you of the view that it ought to be made stronger, and if so, in what respects?
  (Mr Earls) The Code needs to be made stronger if you are going to make it a universal Code. If it is voluntary you cannot ensure that you get that universality. The other areas where the Code can be improved would relate to some of the issues that are addressed in the Code, one of which again we highlighted in our submission, relates to the extent that the Code deals with the process of bank branch closures.

  117. Do you think it deals adequately with the things that actually concern particularly small and medium sized businesses?
  (Mr Earls) Where branch closures are concerned and small businesses have highlighted the importance of branch closures to them we would say no.

  118. On that point, what would you want it to say on the question of branch closures?
  (Mr Earls) We would want to see greater consultation with all the people who have an interest in the running of a branch as to why the branch is being closed and to what some of the consequences would be.
  (Mr Murphy) We are quite impressed with the American Community Reinvestment Act. We are not saying it could be transposed here, I think that would be wrong, but there are elements of that, the consultation with people in the community et cetera and justifications, that is something that we think might be able to be fitted to this particular problem, and we have mentioned it in our Memorandum.

  119. Have you put that forward to the Government from the Union?
  (Mr Earls) In a number of submissions.

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