APPENDIX
Government response
1. Introduction
As the Treasury Committee note in their report, ATM
withdrawal is the most common method of cash acquisition by consumers,
with over 2.5 billion withdrawals made in 2004. It is therefore
essential that the ATM industry is as competitive, transparent
and efficient as possible.
The Government believes it is important that people
should be able to obtain their cash free of charge. This is particularly
true for those on low incomes. In the light of this, the Government
welcomes the work of the Treasury Committee in investigating the
current situation regarding cash machine charges in the UK.
This report sets out the Government's response to
the Treasury Committee's investigation, with particular attention
to those recommendations that are addressed to the Government.
2. The Principle of Charging
Over the past five years there have been significant
changes in the ATM industry: independent ATM operators have gained
direct access to LINK, virtually all the main banks and building
societies now offer free ATM services and, where charges are applied,
transparency has greatly improved. As the Financial Secretary
to the Treasury noted in the evidence he gave to the Committee,
any assessment of the current situation should be seen in the
light of the fact that, as recently as the year 2000, if you went
to an ATM of a bank other than your own, you were likely to have
to pay. Most banks were operating a complicated, opaque and discriminatory
system of charges. Customers of one bank could generally obtain
free withdrawals from only a small set of other banks; if they
used ATMs elsewhere they were likely to be charged as much as
£1.50. The fact that there are now over 30,000 ATMs in the
UK that are free to customers of all banks and building societies
and that over 96% of ATM withdrawals are free of charge shows
a very significant improvement in this situation.
The Government welcomes the fact that the ATM industry
has been opened up to independent operators. This has brought
greater competition to the market and has led to a substantial
increase in the number of cash machines in the UK. There are now
approximately 20,000 charging ATMs, the vast majority in locations
where previously there was no cash machine.
The Government does not believe that free ATMs in
the UK are under threat. There have been a few examples recently
of banks selling off some of their ATMs to independent operators
but the major banks have all now made clear that they have no
plans to sell off any more of their ATM networks. The Government
welcomes this and notes that the number of free ATMs is still
increasing at around 3% per annum. In 2004 this growth included
clear investment by banks on new sites in non-branch locations.[1]
However, the Government would be concerned if evidence were found
of a significant reduction in the number of free ATMs.
Recommendation 3
There are a number of different ways of funding
cash machine provision and it is appropriate for a variety of
models to exist in a transparent, fair and competitive market.
We recognise that cash machines which charge consumers are a legitimate
business model. Their introduction has increased the overall availability
of cash withdrawals and helped sustain small businesses. However,
while these machines do increase provision of "convenience"
locations that had not previously justified a cash machine, there
is evidence that they are now spreading—appearing alongside,
and in some cases displacing, machines that were previously free
to the consumer. This gives rise to an issue of public policy,
namely whether this trend is desirable and what response to it
there needs to be. (Paragraph 21)
Recommendation 12
The evidence we have received indicates that the
dynamics of the market will continue to lead to some conversion
of free machines to charging machines in locations away from bank
branches. All witnesses agreed that the number of charging cash
machines and the number of withdrawals made from them will continue
to grow, although opinion differed as to how far this trend would
go. Where such machines are additional provision, in areas served
by free machines, then this will be beneficial to consumers. If
they displace free machines and reduce access overall to free
cash withdrawals, particularly in areas where there are no bank
branches, then they would have a detrimental effect on consumers.
This will lead to public policy concerns if areas of the country
are left without adequate access to free cash withdrawals—particularly
if this exacerbates existing financial exclusion (which we consider
later). Whether this happens will to a large extent depend on
the attitude taken by the banks to the provision of free cash
machines in these areas. It is therefore important that the Government
monitors the situation very closely to ensure a fair and competitive
market, and to be ready to respond if necessary. (Paragraph 64)
The Government agrees with the Treasury Committee's
remark in recommendation 3 that the introduction of surcharging
ATMs gives rise to an issue of public policy and, as the Committee
advises under recommendation 12, we will continue to monitor the
situation closely. The Government would be concerned if evidence
were found of a significant reduction in the number of free ATMs.
We agree that charging ATMs are a legitimate business
model and welcome the increase in the total number of ATMs that
their introduction has brought. There has been rapid growth in
the number of charging machines in recent years but this is typical
of a new, infant market. There is a general consensus among those
in the industry that the increase in the number of surcharged
withdrawals in the UK is likely to level off when the number of
surcharged withdrawals reaches no more than around 5-10% of total
withdrawals.
The vast majority of new, charging ATMs are to be
found in locations where previously there was no cash machine.
Where they have come alongside free machines this offers a genuine
extension of choice, giving consumers the option of, for example,
avoiding a queue by paying for their withdrawal and is an example
of the market working as it should. However, where they have been
placed in areas where there are no free ATMs, the Government would
be concerned if there were no other means of obtaining cash without
incurring a charge. There are alternative ways of gaining free
access to cash: many of the major banks now offer their customers
free over-the-counter withdrawals at the Post Office and 'Cash
back' is widely available in supermarkets and shops, although
not on all bank account types.
Recommendation 10
The public sector has a particular responsibility
as site owner in respect of negotiation of contracts for the installation
of machines. Public sector managers and employers will wish to
take into account the extent to which their employees (including
those on night shifts in hospital for example) and other site
users may find it difficult to access free cash elsewhere. This
does not preclude them from making financially advantageous arrangements
with independent operators to install a free machine, though in
some cases where there are not enough transactions to support
a free machine a charging machine may be appropriate. Public sector
site owners should consider their charging policy, and monitor
the amount of any charges closely. (Paragraph 57)
The choice between installing free or fee-charging
ATMs is a matter for the site owner, consistent with its own particular
needs and those of its users. However, all public bodies are required
to achieve value for money for the taxpayer in their purchasing
and this should include consideration of both whole life cost
and quality issues. As part of this value for money consideration,
the Government believes the site owner should take account of
all relevant factors in the provision of cash machine services,
and therefore supports the notion that this may include factors
beyond sole consideration of price.
3. Transparency
The Government strongly believes that, where applied,
ATM charges should be transparent so that consumers can make informed
choices about whether to use an ATM. We consider that some good
progress has been made on this issue since the time of the Cruickshank
Report[2]
in 2000, when ATM charges were complicated, opaque and discriminatory.
Issuer charges on LINK cash machine cards have been removed[3]
and LINK agreements mean that double charging (by both the card
issuer and ATM operator) is forbidden and that customers must
be warned of charges before inserting their card. More recently,
the new LINK rules of December 2004 are a good step forward in
further increasing transparency, particularly due to their stricter
requirements on location and size of signs. We look forward to
considering the effect of these new rules when they are implemented
in July.
We believe the Committee was right to raise the issue
of the enforcement of current LINK rules and are aware that examples
have been found of charging ATM not displaying the required signs.
Again, we welcome the LINK agreement in December to strengthen
sanctions for non-compliance and are pleased to note that a LINK-commissioned
independent survey to monitor the situation is already underway.
In response to recommendation 26 of the Treasury Committee's Report,
it is useful that LINK intend to publish the results of this survey
when completed.
4. Financial Exclusion and the role of the Post
Office
The Government is committed to tackling financial
exclusion.[4]
Our key priority in doing so is to reduce the number of individuals
in households with no bank account at all. The most recent Family
Resources Survey in 2003-04 shows that around 6% of households
in the UK have no access to a bank account, any other type of
savings vehicle or a Post Office Card Account. This equates to
1.5 million households or around 2.3 million adults. The total
percentage of households without a current account is 11%. Compared
to international experience these figures are high. For example,
only 3% of adults in Australia lack an 'everyday' bank account
while in Canada, between 3 and 4% of adults do not have a bank
account. Lacking access to banking facilities imposes significant
costs on the individuals involved. For example, financial transactions
such as money transfer and cheque cashing may be very costly and
individuals are unable to benefit from savings made through payment
by Direct Debit. In addition, lacking access to a bank account
can act as a barrier to employment and leaves people vulnerable
to theft or losing their money. Financial exclusion also occurs
where individuals are forced to pay more for services than those
able to access a broad range of services.
The Treasury Committee's report raises concern that
vulnerable and low-income consumers might be subject to disproportionate
costs as a result of ATM charges. We agree with the Committee
that it is important that this should not be the case, and would
be concerned if it were. On existing evidence, we do not believe
that it is the case. As the Post Office said in their evidence
to the Committee, 99% of people in urban areas and 84% in rural
areas live within one mile of a Post Office branch. For those
who do have a bank account, ATMs are not the only way of gaining
access to cash. Basic bank accounts offer free Post Office access,
as do current accounts with many of the major banks.[5]
Benefit recipients receiving their income into a Post Office Card
Account rather than a bank account are also able to access their
cash for free.
The Treasury Committee Report makes a number of recommendations
to the Post Office as to their policy regarding charging ATMs,
which are a matter for Post Office Ltd to take forward. Among
these recommendations, the Treasury Committee asks the Post Office
to place signs next to charging cash machines in Post Office branches
informing customers of the option to make free withdrawals over
the counter. We are aware that the Post Office goes to considerable
lengths to advertise its free over-the-counter cash withdrawal
service and welcome their intention to examine further whether
they can place signs next to ATM machines to make this choice
even clearer to their customers.
Recommendation 33
We note the work being undertaken by the Government
to tackle financial exclusion and to improve access to bank accounts,
and the continued funding and support from the financial services
industry for this. As part of this strategy, it is important that
vulnerable and low income consumers are not subject to disproportionate
costs as a result of cash machine charges. We note that consumers
with basic bank accounts may lack a debit or credit card, giving
them less choice in relation to payment mechanism, and will be
unable to obtain cashback from retailers. (Paragraph 106)
The Government believes it is important that vulnerable
and low-income consumers in all communities can access their cash
for free. We do not think that there is currently evidence to
suggest that such consumers are incurring disproportionate costs
as a result of cash machine charges but agree with the Committee
that it is important this is not the case. In addition to over
30,000 free ATMs in the UK, free withdrawals are available to
all basic bank account holders and many current account holders
over the counter at the Post Office.
As to the features of basic bank accounts, the Policy
Action Team 14 report 'Access to Financial Services' published
in 1999, recommended that the banking industry develop and promote
a basic bank account and prescribed certain key features of such
an account. The report states that the essential feature of a
basic account is that, in order to help the unbanked, there should
be no possibility of an unauthorised overdraft. This is achieved
by replacing the chequebook with an on-line debit card facility.
Basic bank accounts also do not have any authorised credit facility
attached to them. This allows individuals to open accounts, without
unnecessary credit check restrictions, and therefore basic bank
accounts are available to a wider constituency that standard current
accounts with a debit card, a cheque book and credit facilities.
Basic bank accounts are an important means of dealing
with financial exclusion and are a gateway to wider mainstream
services, such as current accounts. All the major high street
banks now offer a basic bank account and the Government and the
banking industry is committed to extending their reach. The 2004
Pre-Budget Report announced a shared goal between Government and
the banking industry to halve the number of adults in households
without an account of any kind, and to see significant progress
towards that goal within two years. Developments will be reviewed
at the end of the two year process to see if further initiatives
are needed.
Recommendation 34
As part of an agenda tackling financial exclusion,
it is very important that those on low incomes have access to
free cash withdrawals. We note evidence that the cash machines
most likely to be converted to charging are those away from existing
bank branches in low footfall locations. If there were to be a
substantial reduction in the availability of free cash machines
then that could exacerbate existing financial exclusion and the
Government needs to keep developments under review. As part of
its work, the Government's Financial Inclusion Task Force should
examine the issue of access to free cash machines in low income
areas. (Paragraph 109)
The Financial Inclusion Taskforce was formally launched
in February 2005. The role of the Taskforce is to monitor progress
against the objectives the Government has set, in increasing access
to banking facilities, affordable credit and free face-to-face
money advice, and to report to Government on what more needs to
be done. The Taskforce has a specific role to report to Government
on the shared goal between the Government and the banking industry
to halve the number of adults in households without a bank account
of any kind.
Banks have indicated that they are committed to maintaining
their ATM networks and the number of free cash machines is growing
at around 3% per annum. However, the Government believes it is
important that vulnerable and low-income consumers in all communities
can access their cash for free. The Government's monitoring of
the ATM market will include monitoring the impact of charges on
vulnerable and low-income consumers.
Recommendation 35
If the Treasury is going to spend public money
identifying areas of concentrated financial exclusion, it seems
unhelpful not to share this information with those organisations
that might be able to make improvements in those areas. We recommend
that the Treasury negotiate permission to share the list of postcodes
where there is concentrated financial exclusion with the Post
Office and other organisations that can help tackle the disadvantage
that people living in those areas face. (Paragraph 111)
The terms of the contract with the company that provided
the postcode analysis of areas of concentrated financial exclusion
means that the Government is unable to share the raw data with
any third party. A summary of the secondary analysis the Treasury
conducted for the publication of 'Promoting financial inclusion'
last December can be found on page 14 of that report. The Post
Office and other organizations are free to contact the research
company, CACI, if they wish to discuss with them the possibility
of direct access to the information.
Recommendation 38 (1st part)
We ask the Government to indicate whether it was
always envisaged that over 75% of the cash machines installed
in Post Offices would charge the public up to £1.50 to make
cash withdrawals; (Paragraph 120)
The Government supports the Post Office's strategy
of making access to cash as convenient as possible, including the
provision of ATM access in addition to over-the-counter
access. However, it was always recognised that ATM access
is provided on a commercial basis, meaning that it is chargeable
in some circumstances.
Recommendation 44
When fully implemented, Direct Payment will save
the government around £400 million each year. It will also
result in many benefit recipients using cash machines to access
their benefit. The benefits system aims to provide a minimum standard
of living for recipients. If benefit recipients have problems
getting free access to their money then they will have less benefit
available for other essentials. Immediate government research
into the effect of Direct Payment should specifically examine
the issue of cash machine charges and the Government should ensure
that the switch to direct payment of benefits does not disadvantage
recipients in the way they access their cash. (Paragraph 138)
As noted above, there are a number of ways in which
those receiving benefits can access their money for free. The
Department for Work and Pensions has ensured that its most vulnerable
customers are paid in such a way that the question of charges
does not arise (because they do not need to use ATMs to collect
their money). They are either paid into a Post Office card account
(which is accessed free of charge over the Post Office counter)
or by cheque (which can be cashed free of charge at the Post Office).
A number of witnesses suggested that there was a
significant problem in terms of benefits and pensions customers
incurring charges to access their money. This is an issue DWP
have been monitoring closely. It has not been raised with them
at the regular meetings they have with customer representative
groups. Nor is there any evidence from Ministerial correspondence
or from feedback that is obtained from DWP front line staff that
this is a significant problem.
DWP have already undertaken independent research
into customers' experiences of, and satisfaction with, Direct
Payment[6]
(a copy of which has been sent to the Committee). This involved
speaking to 1,500 customers who receive their benefits and pensions
by Direct Payment. They were asked an open question about the
disadvantages of Direct Payment and no one specifically mentioned
cash machine charges. If these were a significant problem, as
suggested by some witnesses, then they would have been in respondents'
minds and the Government believes they would have listed them
as a disadvantage. Asking open questions in this way is commonly
used in research and is an effective way of finding out, in an
unprompted way, what is uppermost in people's minds.
DWP do not believe that the available evidence suggests
benefit customers are having problems obtaining free access to
their money and therefore, at this stage, the Government does
not think that further research is necessary. However, we will
continue to monitor the situation closely and if there is substantive
evidence to indicate that ATM charges are becoming a significant
problem for benefit customers then we will look again at whether
further research is needed.
Recommendation 45
The DWP leaflet informing benefit recipients about
the move to Direct Payment does not contain any mention that some
cash machines (including over 75% of those in post offices) will
levy a charge to people accessing their benefit. We recommend
that the DWP revises its guidance to make it clear to benefit
recipients that they may be charged for using cash machines and
provides them with clear information about how to withdraw their
benefit free of charge. (Paragraph 139)
The particular leaflet referred to by the Committee
is no longer in use. However, the Government welcomes the Committee's
recommendation. The Department for Work and Pensions will revise
its guidance and information to customers to make it clear that
they may be charged for using some cash machines. It will also
continue to provide information on how customers can access their
money free of charge.
HM Treasury
9 June 2005
1 Lloyds TSB, for example, introduced 300 new remote
ATMs in 2004, including 130 at petrol stations. Back
2
The Cruickshank Report can be found on HM Treasury's website:
http://www.hm-treasury.gov.uk/documents/financial_services/banking Back
3
Some charges remain on certain credit cards when these are used
to withdraw cash. Back
4
'Promoting financial inclusion', HM Treasury, December 2004, sets
out the Government's strategy to tackle financial exclusion in
three priority areas: access to banking, affordable credit and
free face-to-face money advice. Back
5
These banks are Alliance and Leicester, Barclays, the Clydesdale
Bank, the Co-operative Bank and Lloyds TSB. Back
6
'Customer Experience of Direct Payment' by Lorna Adams, Karen
Bunt and Danielle Bright.DWP In House Report 150 published 24
September 2004. Back
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