Select Committee on Treasury Minutes of Evidence


Examination of Witnesses (Question 640-659)

MR ALAN COOK AND MR GRAHAM HALLIDAY

9 MAY 2006

  Q640  Mr Mudie: Disgraceful.

  Mr Cook: Our application was rejected, or the answer we were given was, because a Post Office counter clerk is not a machine, not an ATM. Then there has been an OFT Payments Taskforce review which has made the recommendation that LINK should consider setting up a Post Office scheme which would have the same effect. The Post Office scheme is not though obligatory on LINK members, so LINK members have an option of whether or not they choose to sign up. What the Post Office, primarily Mr Halliday, is currently working on at the moment is diligently working to set that scheme up. It remains to be seen whether all the banks will sign up. That is the vehicle by which we are pursuing our goal of having free cash available for all banking customers. To go round one at a time—I know you have mentioned the three big banks but there is a variety of small ones—the way to fix this in one shot is to have full membership of LINK basically and that is what we are pursuing.

  Q641  Mr Love: Is there any evidence the reason why membership was refused you was because the members fear the competition which might result?

  Mr Cook: That would not be for me to comment. I have given you the reason we have been given. We continue to push it. All support, joking aside, welcome.

  Q642  Chairman: LINK are scared the supermarkets will come in and that would spoil the cartel, would it not?

  Mr Cook: We are not in a position to comment on what the motivations might be, but the membership of LINK would be, if you like, a neat solution to the problem. Currently we have 10 banks we have signed up with on a bilateral basis but that is a lot of organisations to work round one at a time and a very time-consuming way of achieving our goal.

  Q643  Mr Love: Putting the question the opposite way round, do you think the reasons given to you as to why they have refused membership for LINK are valid, or are you simply complying with them because it is the only way you can gain membership?

  Mr Cook: For me the goal is to provide free access to cash for the British public. Within reason, how we get there is up for grabs. At the moment I do not accept that it would be disadvantageous to the major banks to allow free access to cash from their accounts, given that several of the major banks already do this. Lloyds TSB and Barclays already allow their cheques to be cashed and cash withdrawals at our branches and I do not think it is causing them any particular grief. We have 28 million people every week coming to post offices, they are going to come into the post offices anyway, I do not think we represent an additional competitive threat just because we are cashing their cheques providing access to their accounts.

  Q644  Mr Love: In a letter to the Chairman, one of the major banks concerned gave us a reason why they would not allow their current account holders, which was that you had entered into an arrangement with another bank to provide competitive financial services through your organisations. Is that a valid reason?

  Mr Cook: I think I have probably just answered that. We are talking to all those customers all the time anyway, they are coming into post offices frequently. I do not think the fact we have a partnership with the Bank of Ireland, where we are producing a variety of new financial service products, for want of a better expression, should be of concern.

  Q645  Mr Love: Let me ask you the question looking forward in more general terms. You have outlined today that your role in coming into the Post Office is to replace what are the current services provided by what would probably be considered a range of basic financial services. Looking at how the banks will respond to that, they will see that as competition.

  Mr Cook: Correct.

  Q646  Mr Love: Do you have any concerns that the current good relationship you have with the major banks, the ones you have arrangements with, will likely be adversely affected by the more competitive atmosphere which will undoubtedly develop through your strategy leading up to 2010?

  Mr Cook: I would like to think one of my skills would be to manage that. I think it is important and you do not have to fall out with organisations you compete with. It is possible in today's more sophisticated business environment to collaborate in one sense and compete in another. At the end of the day, fascinatingly, Post Office is part of the Royal Mail Group and these banks are some of the Royal Mail Group's largest customers, because they send out an awful lot of post. So it is possible to both collaborate and compete. I am from that world myself, I think it is entirely feasible to maintain good relationships and on occasions collaborate in, say, the provision of free access to cash, and in another instance to compete in terms of, say, the provision of a savings account or a bond of some sort or whatever. I think that is entirely feasible but I am not saying it is straight forward.

  Q647  Mr Love: Let me press you a little on that. We have already talked about the strong brand name of the Post Office and, even considering the larger blue chip banks, I think everybody would recognise how strong the brand is in relation to that. Do you see any concern likely to be held by the banks of the natural advantages that the Post Office may possess in being able to compete? In other words, would they consider it not quite a level playing field in trying to compete with the Post Office in certain areas?

  Mr Cook: Not at all. I think we are in a strong position to put forward an effective, simple, fair, good value proposition to customers. Insofar as the banks are trying to do the same, then the entry of a new competitor, I am sure, would be a concern. That does not mean we have to fall out with them over it but I think we can make quite an effective play into the financial services market, and I am sure that will concern them. My belief is, for example, that we can also make, and have made, strong strides over the last six to nine months in providing an effective telephony solution, so currently we are offering home phone services at competitive prices and we have signed up 350,000 people who are now making their calls on the Post Office home phone service. Another example of where maybe we can build a business which can sustain the organisation and ultimately the network.

  Mr Halliday: When you talk about a level playing field, I think it is important to recognise that even with the existing LINK arrangements a customer of one bank can go into, let us say, the branch of another bank where there is an ATM, and use that other bank's ATM and therefore be exposed to all their products and services while they are in there. In that respect all we are seeking is that same level playing field.

  Q648  Mr Love: One understands that, I am just looking at it from the point of view of the banks. You may think another bank is on a level playing field but because of the reputation and the good-standing of the Post Office their attitude is that they may think you have a natural advantage over them.

  Mr Cook: Reputations are to be earned and we have a good reputation. It is in our own hands.

  Q649  Mr Love: Can I take you on to another part of your business? There was a survey carried out recently by the British Bankers' Association which revealed that almost a majority of basic bank account holders were not aware of the service you provide at the Post Office. What are you doing to publicise the fact people can cash cheques from basic bank accounts, because it would appear that quite a lot of people who have them do not know about this service and therefore are not making use of it?

  Mr Halliday: We from time to time run publicity campaigns for our banking services. We have the tills in the branches saying they can use the services and our people at the counters are encouraged to tell our customers when they are at the counter they can use the service. In actual fact we have seen the benefits of that in a growth in the overall banking services including basic bank accounts. The other thing we do is test out people who are doing that by using mystery shoppers and we check that we are telling the customers the right information when they are with us. There is an onus on the banks themselves and indeed the DWP when customers receive their benefits or when they open their accounts to make sure that customers are aware they can use the Post Office, and it is an interesting question to ask of those organisations.

  Mr Cook: It is a complicated proposition unfortunately. You can get access to your cash if you have an account which is called this—a basic bank account. If I had LINK membership I would cover the country with the message that you can cash any cheque in a post office. That is a really simple message to put across. Basic bank accounts however have slightly different names with different banks and it is quite difficult to put across the proposition, and if you are not careful someone turns up from a bank we do not have a bilateral arrangement with and it is not actually a basic bank account and we have to say we cannot cash it.

  Mr Halliday: Confusion might also be caused by the fact there are a significant number of accounts which are designated basic bank accounts which are not accessible at the Post Office. Out of the total of 5.9 million, it is only about 2.6 million which can be used at the Post Office. That is because some banks introduced new basic bank accounts on the creation of universal banking services so that only those customers could use the Post Office rather than existing basic bank account holders.

  Mr Love: I think we have that central message about LINK membership and no doubt we will comment on it. One final question and it is related to this: we have already talked about there being cash machines in post offices where there are charges made, yet the same customers who would get their money from that cash machine could use the cashing facilities at their post office free of charge. I think we have asked before that this be publicised so that customers know there is a cheaper way to access their cash. What have you done to ensure customers are fully aware they can get that free service across the country?

  Q650  Chairman: In Speke 38% of customers were paying for their withdrawals when they could have gone to the counters.

  Mr Halliday: I think it was 38% of the people who had used our machine, and it was based on LINK's data which does not include a lot of the other transactions we do which do not go through LINK. The merchandising I talked about and the messages given by our people at the counters are the real method by which we are letting people know they can use the counter. Last year, we did send out some notices to our branches to put by fee-charging machines so they could be aware our counters provided a free service, for some customers in any case. The real message we want to convey is that customers can use the counter free of charge and, as we move forward, those fee-charging machines will not be within our grasp, they will be run by the individual sub-postmasters and we will have to work with them to make sure we do get the right level of merchandising and for the customers to be aware of the service.

  Q651  Mr Mudie: You might not be able to do it, but would you think it wrong of us if the question of LINK and their refusal to let you join was referred to either the Competition Commission or the Office of Fair Trading?

  Mr Cook: It has been to the Office of Fair Trading.

  Mr Halliday: We have worked with the Office of Fair Trading on the Payments Systems Taskforce and there was a lengthy report produced only a few weeks ago on that work. The conclusion was that we could not be admitted to join LINK, as Alan just mentioned, on the grounds that our service is a manned-counter service as opposed to an ATM service and the LINK scheme is specifically designed for ATMs.

  Q652  Mr Mudie: Which is very debateable.

  Mr Halliday: That was our challenge. The outcome of the Taskforce was that we should work with LINK to create a separate scheme.

  Q653  Mr Mudie: I am not sure the Taskforce is important, but have you just accepted the decision of the Office of Fair Trading?

  Mr Halliday: What we need to do is progress the work to set up a separate scheme. That is what they asked us to do and the industry representatives on the Taskforce agreed that should be the course of action and we have to let that particular piece of work run its course. Over the next few months really we will start to see some reaction to that scheme being created because it is available to be up and running during the summer.

  Mr Cook: Once that scheme is set up then it is for individual banks to join. Anything we can do to encourage banks to join that scheme would be beneficial.

  Q654  Mr Mudie: In all the discussions we have been having, we have only referred to the DWP, but when I had the debate in Westminster Hall, when the news broke that Post Office Card Accounts were finishing, informally the Treasury were livid, informally people in the DTI were livid. The decision was taken at certain ministerial level and it was taken in isolation. The Treasury pay tax benefits et cetera, they pay many benefits. Did they pay any of them through the Post Office? Is there access to the Post Office for anyone on tax credits of any kind, or must they all be paid into bank accounts?

  Mr Halliday: There are three government departments which pay money through the Post Office Card Account. One is the DWP, the other is Revenue and Excise, which is the tax credits, and the other is Northern Ireland Social Security. So those three departments are impacted by this decision on POCA but our dealings are mainly with the DWP.

  Q655  Mr Mudie: Is the Revenue and Excise important in terms of income? Is it an important level, or is it nothing compared to the DWP?

  Mr Halliday: DWP is effectively the lead organisation.

  Q656  Mr Mudie: They maybe but what proportion of the income you get from government departments comes from DWP? Tax benefits are a considerable amount of money. Do you have a knowledge of the proportion?

  Mr Halliday: I would like to check on that and come back to you.[7] 28

  Q657 Mr Mudie: I know they are the lead department, but this is what certainly incensed me and incensed all the other people in the wider government, that the DWP which was going to save this money took a decision which affected other departments. It is all right them being the lead department but it does not stop you speaking to other customers. Have you spoken to Revenue and Excise?

  Mr Cook: I had a good conversation a couple of weeks ago with the DTI which was an attempt to get a much more joined-up perspective between government departments.

  Q658  Chairman: You will have made good progress with Alan, and now it is Alistair, so it is important to get in there.

  Mr Cook: To keep going, absolutely. A more joined-up perspective between the different government departments is beneficial. Certainly the conversation with Alan Johnson showed he was really up for that, so I need to have it again, as you say.

  Q659  Chairman: We are wise enough to keep someone in the same place for at least three months before we move them.

  Mr Cook: The Committee may have detected that I can be quite repetitive, so I will keep going on that.


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