Examination of Witnesses (Questions 980-999)
ED BALLS,
MR CLIVE
MAXWELL AND
MS SUE
CATCHPOLE
22 MAY 2006
Q980 Ms Keeble: What do you think
of the criticism that instead of just number counting on the basic
bank accounts we should be looking more at the functionality of
the basic bank accounts so that they suit what people need?
Ed Balls: That is a valid point
and indeed has been an active part of the work of the task force.
Brian Pomeroy said last week that, following the banks' own mystery
shopping exercise, a lot of work is being done looking both at
the way in which basic bank accounts are being taken up but also
at the kind of attributes which people who do not have bank accounts
would like to see. There is a range of ways in which the task
force is discussing with the banks changes to the banking code
and to guidelines in the coming months in order to both improve
access to basic bank accounts but also to look at some of the
parameters around them. For example, whether there should be a
small amount of overdraft facility allowed so that people who
are wanting to operate a direct debit account can have a little
bit of cushion every month. These are all exactly the kinds of
issues the task force is looking at.
Q981 Ms Keeble: Have you considered
alongside that whether there should be a universal service obligation
on banks or something like a Community Reinvestment Act?
Ed Balls: This has been a subject
of discussion for some time. At the time of the 2004 report, we
went for a voluntary approach. I discussed it with Brian Pomeroy
today. The attitude that he and the task force are taking at this
point is that they will make more progress more quickly through
voluntary discussions with the banks rather than getting into
the more public naming and shaming process. We also know that
there is going to be a point when an assessment occurs at the
beginning of next year. The option of going beyond that to legislation
has not been taken off the table. I was interested by some of
the comments made to the Committee last week and I looked at the
detail on the comparison with France, where there is an obligation.
As far as we understand, the obligation has not delivered universal
banking accessibility. We think a similar number of people to
Britain do not have a proper bank account. There are some people
who have a sort of savings account. The French Treasury has been
doing exactly the same kind of work as we have been doing to say
are there ways through publicity, through working with the third
sector, to try and deliver higher take-up. The evidence does not
say that simply having an obligation delivers results. Even if
you had that, you would still need to do all the work we are doing
here. It is not off the table but at the moment we are seeing
whether we can make progress through the task force.
Q982 Ms Keeble: Would you look at
the regulatory regime around accounts? I did some of my own mystery
shopping. If you want to open an account, you are told you must
have a passport, you must have this and you must have that and
the other. Different banks take different approaches to this but
would you look at changing the regulatory regime around opening
basic bank accounts and is that a deterrent for some people?
Ed Balls: There is a number of
issues here but to pick just one, the way in which the rules work
in terms of ID, it is clear from the discussions that there have
been problems with the way in which ID rules are used as an obstacle.
I think you picked this up yourself in your mystery shopping exercises
around different parts of London. We did come up with the JMLSG,
the joint recommendations on money laundering, to try and streamline
this process at an earlier stage. It has now become clear that
that has not worked. We need to move beyond that. The task force
is trying an alternative route which is about identification which
can be done there and then in the branch, without needing to send
off passports elsewhere.
Q983 Ms Keeble: Are you doing work
with DFID looking at remittances and a way that those can be maximised
and handled more smoothly? They are nodding. I want to know the
progress.
Ed Balls: I do not know the answer
to that so I am very happy to ask Sue to report. I do know that,
when the task force was in Chicago, this was one of the issues
that was raised. We will give you a note on remittances.[1]
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Q984 Mr Fallon: Let us hope you can offer
something on the decision to kill off the Post Office Card Account.
You had two million more people taking it up than you thought.
It was costing £200 million a year. You announced after just
three years that it was going to be killed off. This decision
has the Treasury fingerprints all over it, has it not?
Ed Balls: As far as I understood
from the beginning, we were going to have a contract until 2010
for a Post Office Card Account which frankly did not meet our
minimum requirements in terms of providing an effective banking
account for people but was a stepping stone to a better regime
post-2010. I have read the transcripts. I remember these discussions
when I was in a different capacity in the Treasury at the time.
I do not think it is a revelation to anybody that the Post Office
Card Account in this form was going to end in 2010 so the real
debate, as I think the Minister said this afternoon because this
is a Department for Work and Pensions lead, is what is the successor
regime after 2010. As for Treasury fingerprints on some decision,
I do not think that is right.
Q985 Mr Fallon: The Treasury was
involved in the decision to kill it off.
Ed Balls: The original decision
was made to have a contract until 2010.
Q986 Mr Fallon: The Treasury was
involved in the decision not to renew the contract. You expressed
a view on its cost, presumably?
Ed Balls: I cannot tell you exactly
what these processes were because I was not at the Treasury at
the time. It was always understood that in 2010 the contract was
going to end and there would be a successor regime which would
be different and therefore there was always an issue about how
you would negotiate a better successor regime. When you use language
like "killing off" I do not recognise that as being
the way in which the government is working.
Q987 Mr Fallon: Does what you describe
as a "better successor regime" mean something that costs
less than £200 million a year, the same or more?
Ed Balls: We are discussing financial
inclusion today. I think a better successor regime is one which
means that more people have bank accounts or accounts which give
an operational banking element to them, which allow for example
direct debits and which allow you to make deposits. The problem
with the Post Office Card Account is it is not only expensive
for the government but it is rather expensive for individuals
in terms of the cost to them of interest forgone. More than that,
it does not operate as a functional bank account. Any financial
inclusion strategy worth its salt should be about moving people
from a POCA type account on to something which is more recognisably
a bank account. That is what we have always been about from the
beginning.
Q988 Mr Fallon: You have admitted
it is expensive for the government. Is it your view that there
is a better way of spending the 200 million a year on the financially
excluded or is it that you want to save money from the 200 million?
Which is it?
Ed Balls: The government is spending
£120 million on the fund for the next three years on tackling
financial inclusion so clearly we intend to spend money. In terms
of what happens after 2010, at the moment that is something which
is being considered by the Department for Work and Pensions. It
is beyond the ambit of the current spending review until 2008.
It will clearly be part of the discussions for the next spending
review. I do not take a narrow Treasury view about cost here.
The issue is what helps us to deliver our financial inclusion
agenda and I do not think the POCA account is a very effective
way of delivering financial inclusion.
Q989 Mr Fallon: You have made that
clear. I just want to be clear too from this side of the table
whether the £200 million that you say is too expensive being
used on the POCA account is still going to be available, whether
that £200 million will still be there for a programme on
the financially excluded—yes or no?
Ed Balls: The only point I was
making was that the cost per transaction is considerably higher
under a POCA account than it would be under a comparable bank
account. You cannot expect me as a Treasury minister of two weeks'
standing to start pre-empting future spending reviews which will
be made by the Government as a whole, but it clearly is the case,
as the minister at the Department for Work and Pensions made clear
this afternoon, that the intention is to have a successor regime
which delivers for people access to benefits at the Post Office
but in a way which is more suited to the financial inclusion objectives
we are trying to talk about today.
Q990 Mr Fallon: Is it also the case
that you want that successor regime to save you money? Is this
part of the efficiency drive?
Ed Balls: As you said, it is not
about saving money because it is costing us money. I have said
to you very clearly that I am not going to pre-empt future discussions
about spending. What I am clear about is that we need to make
sure that, however we spend money, we spend it in a way which
helps us to deliver financial inclusion. The POCA account was
never part of our financial inclusion agenda because it is not
actually a banking account and therefore any sensible government
trying to pursue this agenda would want to look to a successor
regime. That is not in any sense a backward step; it is a forward
step for this agenda.
Q991 Kerry McCarthy: I would like
to switch subjects now and ask about access to affordable credit,
particularly community investment tax relief. Would you regard
the scheme so far as a success?
Ed Balls: It is fairly early days
but we are engaging a whole sector, the mutual sector, and the
third sector in the financial inclusion agenda in an integrated
way, in a way in which they have not been effectively integrated
in the past. As I said, I am early into this role but I read the
transcripts of evidence from people from the third sector, from
the umbrella organisation and also from the Leeds Credit Union
and the Southwark Credit Union and it was clear that they thought
that this agenda was going in the right direction and that they
also thought that the task force was a route through which they
could have a genuine substantive influence on the future policy
agenda. I do not feel equipped to give you a judgment as to whether
this situation is satisfactory but I certainly feel it is moving
in the right direction, and the sector I think said so too.
Q992 Kerry McCarthy: When Cyril Cohen
came up with the idea of CITR five years ago with the Social Investment
Task Force he was envisaging about one billion being invested
through that. I think today it is about £38 million. Recently
there have been reports that the two main ethical investment banks,
Charity Bank and Triodos Bank, have both pulled out of the scheme
and stopped accepting deposits. Do you think there is now a need
to review how the scheme operates?
Ed Balls: I saw Brian Pomeroy
today. We agreed that this is an issue which we want to look at
very closely in the months ahead. I think it would be premature
for me to give you a judgment. I have spoken to Ronnie Cohen about
this over recent months before taking on this job and I think
he thought that the Government was effective in implementing his
report. As I said, I am very happy to look at this in detail in
the coming months. I think it is an important part of my new job.
Q993 Kerry McCarthy: One of the things
he suggested was that there might be a need for an intermediary
for CDFIs because you have got lots of little institutions that
they are trying to set up but in terms of distributing capital
to them I think he suggested in a recent press interview that
maybe there was a need for a major organisation. He also suggested
that the Commission on Unclaimed Assets, which is looking at this
£2.5 billion lying in dormant accounts, might be something
which could be used to act as an intermediary to pass that money
over to CDFIs. Do you think that is a runner as an idea?
Ed Balls: I certainly think that
what you are talking about here, whether it is credit unions or
small and non-mutual providers of finance, is often small, inexperienced
organisations that need all the help they can get. It is certainly
the case that we are keen to provide that. I have to say, Chairman,
that it is a question of detail beyond what I personally can give
you as an adequate answer and I wonder whether Clive might say
something about it.
Mr Maxwell: With respect to the
unclaimed assets work, the banking sector has made various commitments
about first trying to return those unclaimed assets to the individuals
they first belonged to and then over time giving those assets
to other organisations to spend. They are looking at different
options for that, ways of reinvesting it in communities. It may
well be that models like this are a way forward but there are
lots of options out there as to how they might channel that money
most effectively to give best value for money to the communities
around the country.
Q994 Kerry McCarthy: I have one final
question about the cap on credit unions' lending. It has been
agreed that it is going to go up from 1% to 2% and that was flagged
up in the Budget. Has that come on stream yet or not?
Ed Balls: I think it comes on
stream from 1 June. It has certainly been the case that one of
my first decisions was to confirm that in regulation. It is an
issue where there are quite strong views on both sides of the
argument within the mutual sector but I think that this is a sensible
way in which we can make sure that we ease some of the restrictions
while keeping the comfort which comes from the continuation of
the cap.
Q995 Kerry McCarthy: People who have
spoken to me were under the impression that it could only come
on stream either at the beginning of April or at the beginning
of October and I have had representations made that it would be
better if it were tied up with the DWP Growth Fund, but it sounds
like that is what you have done.
Ed Balls: Yes.
Kerry McCarthy: That is good news.
Q996 Mr Love: Can I ask about the
long term sustainability of third sector lenders? Up until now
they have been funded by the Phoenix Fund and, of course, that
is something that will disappear. We had one of the lenders before
this committee tell us that revenues from their lending would
only cover 60% of their overheads. Are they sustainable, does
your research show that they can be made sustainable and is there
an argument for some form of longer term subsidy in order to make
them sustainable?
Ed Balls: It is early days but
there are issues which the third sector is putting to us in the
task force for us to look at in order to make sure that we can
do more to support the sustainability of the sector and to ease
some of the regulations. There are also things the third sector
are doing themselves to build new partnerships, for example, the
Community Banking Partnership which is bringing together credit
unions, community development organisations, financial institutions
and banks. They are all building a partnership in one place and
I know that the New Economics Foundation has pushed that issue.
We certainly have one example of that kind of partnership working.
There is also work being done to link up with the banking sector
itself for mutuals and third sector providers to provide current
accounts directly and I think there are some link-ups which have
occurred with the Co-op Bank to do that. There are new partnership
models being established and you will know from the evidence you
have seen that the third sector puts it to us that there will
be things that the Government needs to do, either with direct
finance or with regulation, to make that happen and make it sustainable.
We are very open to those kinds of proposals.
Q997 Mr Love: Would you accept that
if there is not some form of long term subsidy for third sector
organisations you will need to increase the cap, for example,
in credit unions from the 2% that is being put forward to perhaps
3% or 4% in order then to recoup in terms of income? That begins
to take those organisations away from the community base in which
they operate and therefore there is a real dilemma and challenge
there. How do you think they can solve that?
Ed Balls: The £120 million
fund, which works until 2008, includes I think £36 million
for supporting directly the growth of third sector credit. As
a minister newly responsible for this area I do not see this agenda
ending in 2008 when the period of the £120 million and the
Growth Fund ends. On the one hand an objective for us is to try
and make sure that these initiatives and this support become mainstreamed
into the work of the DTI and the DWP in advice but at the same
time to make sure we do not lose the focus, as somebody coming
new to this, having been away for a while, of what is a much more
integrated and effective delivery mechanism than we have seen
in the past. A priority for me as the Treasury Minister responsible
for this will be to make sure that between now and the end of
the spending review we come up with a credible strategy, with
support within Government and across the broader sector, which
can take forward these initiatives, learning from where we have
got to in the work of the task force, to the period beyond 2008.
I want to make sure that financial inclusion plays an important
part in the spending review and hopefully that will be the vehicle
by which we can take forward some of the post-2008 issues you
referred to.
Q998 Mr Love: Brian Pomeroy also
said to us when he came before us that he wanted to extend his
remit past 2008 and we will wait to see whether he comes back.
Ed Balls: He did not say that
to me this morning but maybe that was after having come to the
select committee rather than before.
Q999 Mr Love: He is going to write
to us on that, so maybe he will be thinking about that issue.
Ed Balls: He seems to be enjoying
his job.
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