House of Commons - Treasury - Thirteenth Report

Select Committee on Treasury Thirteenth Report

7 The Post Office Card Account

96. In its June 2000 report on Modernising the Post Office network, the Prime Minister's Performance and Innovation Unit recommended the establishment of a Post Office-based Universal Bank.[202] This was envisaged as a Post Office-based bank offering accounts that would be opened and operated through the Post Office. The accounts would have offered direct debits and the ability to withdraw cash from cash machines, in addition to deposit and withdrawal services from Post Office counters. However, as Mr Graham Halliday, Director of Banking and Financial Services at the Post Office, told us that

in actual fact, when the cost of running a single bank account with all the functionality … was looked at, it was discovered that it would not work financially. What was set in place was universal banking services [which] had two legs attached to it. One of those was the creation of the banks' own basic bank accounts which were accessible at the Post Office; the other leg was the Post Office Card Account.[203]

97. The Post Office Card Account (POCA) is a simple account that can be used to receive benefits, State pensions and tax credit payments. No other money can be paid into the account and it cannot be used for the receipt of wages from employment. Money can only be withdrawn over-the-counter in Post Office branches. The account does not offer standing orders or direct debits. When the Government introduced the direct payment of benefits into accounts, claimants were offered a choice of whether to have the money paid into an existing bank account or to open a new basic bank account or Post Office Card Account.

Take-up

98. The take-up of Post Office Card Accounts has been much greater than the Government expected, with over 5 million customers requesting a POCA. As of April 2006, there were 4.3 million customers (including 2.3 million pensioners) regularly collecting their benefits through a POCA, generating around 129 million transactions per annum.[204] Ms Perchard described the take-up of the POCA as "phenomenal", given the difficulties faced by customers seeking to open a POCA.[205] As shown in Table 5, the take-up of the POCA has been particularly marked amongst pensioners.

Table 5: Number of Direct Payment customers opting for Post Office Card Accounts or payment into bank accounts, by benefit received. Data up to March 2005

Pensions Jobcentre Plus Child Benefit Veterans Agency DLA/AA Carer's Allowance Total

PO Card account requests received to date 3,109,846 1,001,155 686,903 43,979 258,849 71,583 5,172,315

Bank details received to date 2,909,825 1,582,851 2,534,888 70,686 625,496 193,382 7,917,128

Positive responses received to date 6,019,671 2,584,006 3,221,791 114,665 884,345 264,965 13,089,443

Bank details received to date (%) 48.34% 61.26% 78.68% 61.65% 70.73% 72.98% 60.48%

PO Card account requests to date (%) 51.66% 38.74% 21.32% 38.35% 29.27% 27.02% 39.52%

Source: PostComm's fifth annual report on the network of post offices 2004-05, p 38

99. We asked witnesses what factors they thought had led take-up of POCAs to be much greater than the Government expected. Ms Whyley noted that "people do like to deal with the Post Office; it is something which is familiar to them.[206] Other witnesses noted that the benefits of the POCA were clearly explained and that, as documented earlier in this Report, many people had encountered difficulties in opening basic bank accounts.[207] The take-up of Post Office Card Accounts has been far greater than the Government expected, with 4.3 million people currently using the POCA to receive benefits, including 2.3 million pensioners. This appears to reflect both the difficulties in opening basic bank accounts and the perceived advantages amongst benefit claimants of using the Post Office.

The POCA and financial inclusion

100. Some witnesses argued that the limited functionality of the Post Office Card Account meant that holding such an Account did not result in financial inclusion. Ms Whyley told us that

the limited functionality of those accounts really does not amount to financial inclusion. It merely is a good way of people receiving their money electronically. It is not financial inclusion in any meaningful sense.[208]

Mr Pomeroy told us that people who currently only held a POCA were counted as financially excluded, "because the functionality of the Post Office Card Account is very limited compared with a normal bank account".[209] Others took a different view: the BBA believed that, "where an individual having opened a POCA is aware of its limited functionality, but decides nevertheless it meets their requirements, this we consider results in financial inclusion".[210]

Withdrawal of the Post Office Card Account

101. The first announcement that the Government were not intending to renew the contract for the Post Office Card Account was made during a debate in the House of Lords on 12 January 2006 when Baroness Prosser, a Non-Executive Director of Royal Mail Holdings, stated that "the Department for Work and Pensions has notified us that the current Post Office [Card Account] will cease when the contract ends in 2010-11".[211] Mr Plaskitt told us that

the contract that [the Government] agreed with the Post Office back in 2002 exclusively states that it runs from 2003 until 2010. Nothing of that has changed. [The Government] will continue to honour the contract right the way through to 2010.[212]

A debate on the Post Office Card Account was held in Westminster Hall on 15 February 2006. In that debate, Mr Plaskitt noted that the contract with the Post Office specified that "The POCA is intended to be an interim step for Account Holders who will be encouraged by both Parties to migrate to Bank Accounts which provide services and opportunities not available through the POCA".[213]

102. Mr Plaskitt told us that operating the POCA cost the DWP around £200 million each year.[214] The DWP has also indicated that the average cost "of making a payment into a Post Office Card Account is approximately £1.00, compared to £0.01 into a bank or building society account".[215] We asked the Minister whether the decision not to renew the POCA was based on the need to make efficiency savings in Government expenditure. He told us that "there are no cuts here" and that

it is not a cuts exercise or a savings exercise … It is about honouring the contract because the contract that we wrote and both of us signed up to commits both of us—the Post Office and DWP—as soon as the Card Account was up and running to do the migration work to get people into financial inclusion.[216]

103. Witnesses from third sector organisations expressed concern about the fact that the contract for the POCA would not be renewed and that the account would be phased out. SAFE told us that

the possible closure of the Post Office Card Account concerns us. This is because they are a uniquely simple, accessible product enabling unbanked people to receive benefits by Direct Payment. As such, its withdrawal from the market could mean the exclusion of those who are: unwilling or unable to use a more fully featured account or unable to overcome barriers to opening an account, notably ID/AV and application procedures. As well as this direct concern, the withdrawal of POCA also represents a failure to grasp the possibility of graduating people through such a basic service towards more fully featured accounts.[217]

Ms Perchard told us that "Simply to prevent people developing it and then to ditch it is an abdication of responsibility which affects a lot of vulnerable individuals on low incomes".[218]

The migration process

104. If, as the Government intends, the contract for the POCA is not renewed, then there will need to be some sort of migration process undertaken to ensure that the 4.2 million people currently using the POCA can continue to be paid State benefits. Citizens Advice told us that the Government

cannot take four million people who rely on benefits, a lot of them older people who use that as their payment system, and suddenly close the door on that payment method in 2010 … [The Government needs] to start now to think about how you can transfer people onto a payment system which will be there for them in ten years time.[219]

The Post Office indicated that between 1.2 million and 1.3 million (around 30%) of POCA holders did not have access to a bank account.[220] Mr Plaskitt believed that "some will be our pensioner customers. Some will be working age benefit customers who do not have a bank accounts either."[221] The remaining 2.9-3 million POCA users will have some other form of bank account, although it is not clear if these figures include people who may only have a savings account, rather than a current account or basic bank account.

105. In terms of the future, two possible options were discussed in evidence.[222] The first was to migrate customers away from the POCA to an existing bank account, or to require them to open a new form of bank account. The second was to move customers to an alternative Post Office product, either one of the new financial services products, or to some expanded version of the Post Office Card Account.

106. The banking industry provided £182 million over five years to help fund the Post Office Card Account. RBS were of the view that

the Government's approach to tackling financial exclusion through the Post Office needs greater clarity. The banks were called on to provide large sums of money to fund the Post Office card account. But the POCA was then designed in a way that does not support credit scoring and which in practice handicaps the ability of those who hold a POCA to access credit. It is not clear whether the Government genuinely wishes to see the Post Office play the longer-term role in tackling financial inclusion that its history, customer base and network would appear to suit it for.[223]

Sir Fred Goodwin told us that the banks had "signed up to develop an account which had far greater functionality than the one we have". He raised the question that "if the POCA is going to disappear, what are the plans, then, for how benefit is going to be paid".[224]

107. Given the implications for the banks of any widespread transition from POCAs to basic bank accounts, we asked the chief executives whether the DWP or the Government had discussed the future of the POCA or any migration programme. Sir Fred Goodwin indicated that RBS was not party to such discussions, stating that "I do not know what the plan is; that is the problem".[225] He indicated that there were huge logistical implications for the banks, depending on what decision was made and considered that "some clarity would be good".[226] Mr Crosby believed that "something is going to have to be agreed for this very large number of customers by 2010. The reality is there is going to have to be a series of conversations between Government, the banks and the Post Office because at the moment clearly there is no plan, but there is plenty of time to create one."[227] Mr John said that he would certainly like to see the card account developed further: "after all, [the banks] have contributed quite a lot of money to it; it is successful".[228] Mr Plaskitt pledged to meet with the banks to discuss the future of the Post Office Card Account and the possible transition or migration process.[229]

108. The DWP has undertaken three pilot schemes to test methods of encouraging Post Office Card Account users to migrate to using bank accounts to receive their benefits. These methods were:

not promoting the option to open a new Post Office Card Account for around 3,000 customers making a new claim for Jobseeker's Allowance, State pension or Pension Credit;
writing to around 25,000 customers paid by Post Office Card Account asking them to supply account details. This pilot involved some follow-up telephone calls to check if customers had received their letter and to see if they had any questions or needed help or support to open a new account; and
writing to around 1,500 customers who had one benefit paid into a Post Office Card Account and another into a bank account saying that the Government intended to pay both their benefits into their bank account.[230]

Citizens Advice were frustrated about "the lack of consultation about the brief pilots that were run by DWP to test methods of encouraging POCA holders to migrate to basic bank accounts".[231] Mr Plaskitt undertook to share information from the results of the pilots with this Committee and with Parliament.[232]

109. Witnesses from consumer groups noted that any migration process to basic bank accounts would require tackling the barriers that had prevented people from opening such accounts in the past, and also ensuring that these accounts were suitable. Ms Whyley told us that

it is essential that we get the basic bank account products right if we are going to expect people to move from the Post Office card account to those accounts, but it is really important that we get the migration process right. There needs to be significant investment in that, because we have to make sure people have the right accounts for them, that they have accounts that allow them to access their money where they want to access it and which offer them a product that works. If you think how rare it is and how big a deal it is, even in the mainstream, when people switch a current account, in this setting, where people are being forced to move, it is going to be incredibly stressful … It is vital that we get this right, as it will move the basic banking progress back several years if we get it wrong.[233]

Ms Perchard noted that the POCA had been designed to deal with those who would not or could not open a bank account, contending that such people would require quite a lot of support in individual cases to transfer to mainstream banking. She cautioned that some people would be

quite difficult to reach; they may have mental health problems or they may be older people with Alzheimer's who cannot deal with their financial affairs in the way that we might attempt to, and they will need more support than mainstream consumers … It is not just about putting out cards and accounts and telling people where to go. Some people will need much more support and help to get into the system but also to manage their financial affairs effectively when they are in.[234]

110. There are around 1.2 million people using Post Office Card Accounts to receive benefits who do not have access to another account. For any migration from POCAs to basic bank accounts to be successful, there needs to be significant progress in tackling the barriers to opening accounts identified in this Report. In particular, in view of the difficulties encountered by customers in proving their identity to satisfy the anti-money laundering regulations, we recommend that the Government investigate whether the provision of a statement from a POCA could be used to help people prove their identity. Substantial investment would also need to be made to provide help and support through Citizens Advice and other community-based institutions for people, many of whom may be pensioners, to enable them to open and operate basic bank accounts. Clear information that people will be able to continue to support their local Post Office by making withdrawals over-the-counter will also need to be provided.

111. The second option discussed in evidence was to move customers to another Post Office-based product, either a new Post Office account, or some revised version of the POCA. SAFE considered "the possibility of expanding features of the POCA to have real potential, provided it continues to be debt free", for example with no charges for failed transactions.[235] Mr Alan Cook, Managing Director of the Post Office, told us that the Post Office "have to find, I believe, an alternative, more functionally rich successor, if you like, to the card account and that is the conversation I am trying to engage the DWP in now".[236] He went on to indicate that it was

the case that the original specification for the Card Account was to make it really simple. You cannot do much with it at all, you go to a Post Office, you take the cash out. If you take too much out by mistake you cannot put any back in … I think we can produce a card account that has more capability, which would enable you to access cash in different ways and pay bills. I believe that would be a big step forward for current customers that we regard as socially excluded who do not wish to make, for whatever reason, the bigger step towards taking out a current account.[237]

112. Mr Plaskitt told us what the Government

would clearly like as an outcome … is to see as many more people as possible moving to a state of being financially included. We do not know at this stage exactly what the structure of a successor account to the card account will look like … [The Post Office] would clearly like [the account] to have more functionality. So would we. Exactly what form that it will take it is too early to tell. We will find out more about that as the migration exercise proceeds and we learn more about what customers want and expect from that successor account … What we have an opportunity to do here, as we move forward and successor and alternative accounts appear, is to help hopefully as many as we can of that million people become financially included by moving to an account that does give them opportunities and facilities that the Post Office Card Account does not at the moment give them.[238]

113. There will clearly need to be a successor to the Post Office Card Account for those who cannot manage with or obtain a full bank account. We recommend that the DWP work with the Post Office to introduce a successor to the Post Office Card Account with greater functionality.

The overall approach of the DWP

114. We have received evidence that organisations with highly apposite views on matters relating to the future of POCA were not consulted on the migration pilots, including Sub-Postmasters and Citizens Advice.[239] This is symptomatic of wider problems in the handling of the matter. The approach of the DWP to the future of the Post Office Card Account has been characterised by inadequate consultation and a lack of clear strategic planning. Sub-Postmasters and Citizens Advice were not consulted at an early stage about the migration pilots. The high street banks, which provided funding for the POCA and will be closely involved in any transition to basic bank accounts, have not been consulted. The DWP must develop clear plans for the future arrangements for the 4.3 million people currently receiving benefits through the Post Office Card Account, consulting widely with the Post Office, Sub-Postmasters, high street banks and Citizens Advice and other consumer groups. We expect the DWP to publish a document outlining this strategy before 2007.

The role of the Post Office in promoting financial inclusion

115. The withdrawal or replacement of the POCA is likely to have substantial implications for the future of the Post Office network. The National Federation of Sub-Postmasters (NFSP) noted that the Post Office, with 14,500 branches, is larger than all of the United Kingdom's banks and building societies combined. The Post Office also has branches in locations where banks and building society branches had long since ceased to exist.[240] The NFSP observed that the Post Office was a trusted brand, particularly among marginalised or vulnerable members of society, who form a disproportionately high percentage of the customer base.[241] The NFSP thought that withdrawal of the POCA could cost the network at least £100 million a year in income, in addition to further reduced income from lower "footfall" due to fewer customer visits—leading to fewer purchases of other goods and services. The NFSP believed that the "inevitable reduction in the Post Office network will in turn have a further and disproportionate impact on financially excluded groups who are often dependent upon their Post Office".[242] Mr Cook told us that "it is undoubtedly the case that the decision to close the Card Account, if we can get nothing in its place [to] retain the footfall of those customers, will be a negative impact on the profitability of Post Office Limited, a large negative impact".[243]

116. The Post Office indicated that the overall Post Office network is currently making a loss of around £2 million a week. The Government, through the DTI, is currently paying £150 million a year through the 'Social network payment' to support the Post Office network. The Government has committed to the maintenance of the 'Social network payment' until March 2008 and is "carefully considering options for the network beyond 2008", but is "not working to a fixed timetable".[244] We put it to the DTI that any loss of revenue from the closure of the POCA could lead to this social network payment needing to be increased if Post Office closures were to be avoided. Ms Fiona Price of the DTI told us that "it is certainly something that would need to be considered along with all the other issues".[245] Mr Cook was clear that the "Government needs to take a whole of Government perspective on the provision of services for the Post Office".[246] The Economic Secretary to the Treasury told us that the question was "How we can make sure that footfall in the Post Office network is maintained and increased—because it is a huge resource for the country—but in a way which actually delivers proper kinds of accounts which people should be able to access at the Post Office".[247]

117. The Post Office's customer base, extensive branch network and trusted role in the local community mean that the Post Office can play a lead role in promoting financial inclusion. The Government is not maximising the potential of the Post Office in this area. The loss of the contract for the Post Office Card Account, whether these customers are eventually transferred to basic bank accounts or to an alternative Post Office product, is likely to result in a loss of income to the Post Office. If this income cannot be replaced by alternative services or products, then either Post Offices will close or Government spending on the social network payment will need to increase. This would result in a saving to the DWP but a corresponding increase in expenditure by the DTI. The Government needs to ensure a joined-up approach by the DWP, DTI and the Treasury to funding and providing services through the Post Office network. In view of its overall responsibility for public spending, we think that the Treasury is the appropriate lead department for developing this strategy. We recommend accordingly that the Treasury develop a clear blueprint for the role of the Post Office and financial support for it. The Government also needs to recognise the negative impact that further Post Office closures could have on financial inclusion.

Access to cash over Post Office counters

118. Under the universal banking arrangements, Post Offices provide the public with free over-the-counter access to cash withdrawals from their basic bank accounts and some current accounts. The Economic Secretary to the Treasury told us that he was worried that "too many people do not seem to know about it, and they do not seem to know that actually you can use a Post Office to access the wider banking system".[248] Recent BBA research found that only around 50 per cent of basic bank account holders were aware that withdrawals could be made over-the-counter at the Post Office.[249] However, this result needs to be seen in the context that there are still almost 4 million basic bank accounts which were opened before the launch of Universal Banking Services, where the customer is unable to use the Post office counter. Only around 2.4 million basic bank accounts offer Post Office access for cash withdrawals.[250]

119. At present just under 60% of current account holders cannot use the Post Office network to access cash. In particular, three major banking groups—HSBC, HBOS and RBS—do not offer any Post Office access to their current accounts. Sir Fred Goodwin told us that RBS saw "no evidence that such an arrangement would be valued sufficiently by our customers to justify the additional business expense. Moreover, as a matter of straightforward competition, the Post Office has begun in co-operation with another bank to sell its own competing financial products to customers across the counter."[251] To extend free access to cash, Citizens Advice believed that all current account customers ought to be able to withdraw cash for free at Post Office counters. Lloyds TSB saw the Post Office as "providing a useful supplement to our branch network, providing access to branches for our personal customers in areas where our representation is sparser". They noted that over "99 per cent of the population are within three miles of either a Post Office or branch of Lloyds TSB".[252] There is also the issue of whether customers can make deposits at Post Office counters. Currently, of the major banks, only basic bank account customers of Alliance and Leicester, Lloyds TSB and the Co-operative bank can make deposits at Post Office counters.

120. The LINK access and Governance working group of the Payments Systems Taskforce discussed whether to allow the Post Office to join the LINK card scheme, to enable it to offer over-the-counter transactions to all LINK card holders because such membership would not be allowed under the criteria for the LINK card scheme. Agreement was not reached on whether the rules for LINK access were sufficiently wide and whether the Post Office should be able to join. The LINK Access and Governance Working Group report concluded that "members of the LINK card scheme and Post Office Ltd should continue to explore if a way acceptable to all parties can be found that would allow free cash withdrawals at Post Office counters for all consumers holding a current account with a major financial institution".[253]

121. Lack of access to cash withdrawals for current account customers may be one of the factors that could cause difficulties in any transition away from the Post Office Card Account. Although, as already noted, almost 70% of POCA users also have some form of bank account, many of these may not be accessible at Post Office counters. Indeed, this might have been a reason why the customers concerned originally opted for a POCA. In areas of the country where there is a lack of access to other forms of free cash withdrawal, these customers may be reluctant to switch away from a POCA. Universal banking services available through the Post Office are far from universal, with around 60% of current accounts not offering access to cash withdrawals at the Post Office counter. We note that while some banks have problems regarding the cost of such access, which presumably can be overcome through negotiations, for others the main barrier is the fact that the Post Office is a competitor in the sale of financial products. We recommend that the DWP and the Treasury discuss with the banks increasing access to Post Office counter withdrawals and ensure that further progress is made.

ATMs in Post Office branches

122. When the then Treasury Committee examined the issue of cash machines in Post Office branches in 2005, they found that of the 2,493 cash machines (ATMs) within Post Office branches, 1,856 charged a fee direct to the consumer. The then Committee concluded that "the Post Office needs fundamentally to re-examine its policy concerning charging cash machines".[254] The Post Office told us that, since October 2005,

Post Office Ltd has changed its cash machine strategy. Post Office Ltd has taken the decision to withdraw from its over-arching contractual arrangements with existing ATM suppliers and going forward will only introduce free-to-use Post Office Ltd ATMs. In practice this means that the existing physical arrangements in branches will continue until the end of the contract.[255]

123. Mr Cook told us that the Post Office had plans to put 1,500 free ATMs in Post Offices as their existing contracts with charging operators came to an end. Existing contracts meant that this installation of free machines would take a number of years.[256] During the then Committee's inquiry into charging cash machines, Citizens Advice told our predecessors about Speke—a low income area of Liverpool, identified as an area currently lacking access to free cash machines. The Committee concluded that the Post Office "had a particular responsibility to ensure that (if commercially viable) a free machine is installed in areas that lack access to free cash withdrawals".[257] The Post Office told us that as a result of the Committee's inquiry they had now installed a free cash machine in Speke and that "the machine is growing in terms of the number of transactions it is doing. Not only that, it is bringing additional benefits to the sub-Post Office and also the retail outlet."[258] We welcome the fundamental change in the Post Office's cash machine strategy to increase the number of free ATMs. We recommend that they speed up their installation of free cash machines and ensure that they prioritise viable sites in areas that currently lack access to free cash withdrawals.

202 Prime Minister's Performance and Innovation Unit, Counter Revolution: Modernising the post office network, June 2000 Back

203 Q 593 Back

204 Ev 439 Back

205 Q 25 Back

206 Ibid Back

207 Q 160 Back

208 Q 26 Back

209 Q 491 Back

210 Ev 214 Back

211 HL Deb, 12 January 2006, col 329 Back

212 Q 909 Back

213 HC Deb, 15 February 2006, col 489WH Back