Examination of Witnesses (Questions 1020-1039)
ED BALLS,
MR CLIVE
MAXWELL AND
MS SUE
CATCHPOLE
22 MAY 2006
Q1020 Mr Mudie: Minister, it is not
that they are choosing. The point has been made by the Post Office,
they point has been made by the committee, the point has been
made by sub-postmasters. If you end this contract and you replace
it with something paying less, which is obviously going to happen,
you continue the move, and it is on the table now, from 14,000
down to 4,000, so even the person who wants to go to the Post
Office, whom you even allow to go to the Post Office, may not
have a Post Office to go to.
Ed Balls: I do not find that these
days that is a way in which people in the modern Post Office are
thinking. What they are actually thinking is not, "We should
be subsidised to provide what we have always provided independent
of whether it gives a good service or is value for money".
What they actually want to do is persuade people to come into
the Post Office because they can give a better service, being
competitors, in a way which is more suited to the reality of modern
life.
Q1021 Mr Mudie: That is a very interesting
answer, Minister, because you regard this contract as a subsidy
for the Post Office. This £200 million is a subsidy.
Ed Balls: I think, Mr Mudie, that
was what you put to me. You said to me unless we continued that
subsidy the Post Office would have no future.
Q1022 Mr Mudie: No, no, Mr Balls,
I did not say that. I said unless you can continue with the contract,
with the arrangement.
Ed Balls: This particular contract.
Q1023 Mr Mudie: The contract, yes.
It was not a subsidy. It is an arrangement entered into for the
past 100 years to deliver benefits.
Ed Balls: As I understand it,
and you will know the details of this, a contribution to the Post
Office card account was made by the banks themselves so clearly
this was not a continuation of a 100-year practice in which the
Post Office as a self-standing organisation had support to deliver
accounts. It was a decision which was made for a new kind of account
for a time limited period, which was only done on the basis of
external contributions from the banks and from the Government,
and the question to my mind, because I have met with my local
postmasters and postmistresses about this, is 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.
Q1024 Mr Mudie: The Post Office people
regard the contract and the footprint, as you say, as absolutely
crucial to keeping 14,000 (or as near as possible 14,000) post
offices together, which we regard as important from the financial
inclusion point of view because of their geographic spread, but
if this arrangement made between the DWP, yourself and the DTI
finishes in 2010 it will be 4,000 post offices instead of 14,000.
Ed Balls: I would be very surprised
if those numbers were correct. I do not think anybody is suggesting
that the removal of this contract, even if it was replaced with
nothing, would immediately mean a jump from one number to another.
The important point, and I think we agree on both these propositions,
is that on the one hand the Post Office network in my constituency
and yours provides a very important way in which people in our
communities can access financial services, not just an account
but more generally broader advice and the other services which
can come from that. At the same time we all accept, I think, that
the Post Office card account does not contribute to tackling financial
inclusion because this is not what we recognise as a modern functioning
bank account. It does not have any of the facilities of a bank
account, and in the case of the basic bank account you are rightly
saying that we should try and make sure that the basic bank account
works more effectively for individuals and make it more sophisticated.
The Post Office card account is quite a long way from even providing—
Q1025 Mr Mudie: Mr Balls, the DWP
Minister finished off by saying that this was about the customers,
and that was how I started the question to you.
Ed Balls: It is about the community
and customers.
Q1026 Mr Mudie: Four million people
had books. For financial purposes, savings, the Government decided
to get rid of books. They gave people three choices. You just
phoned up if you wanted a bank account; to move it into a bank
account you just made one phone call. To get a Post Office card
account you had to go through all sorts of hurdles. Four million
people did it and if you live in the community that you represent
you know why a lot of them did it.
Ed Balls: But 70% of—
Q1027 Mr Mudie: But you are now coming
and saying, "I know better. You are not going to have a Post
Office account. You are going to have a bank account. You are
going to be financially included." What about people who
say, "I would rather have my Post Office card account"?
Ed Balls: We want people to be
financially included, do we not?
Q1028 Mr Mudie: Yes.
Ed Balls: That is what we are
discussing today.
Q1029 Mr Mudie: Exactly.
Ed Balls: And we all accept that
the Post Office card account does not deliver that objective,
so the question is how can we deliver greater financial inclusion
and at the same time support the Post Office network?
Q1030 Mr Mudie: Exactly. It is a
new question.
Ed Balls: As I understand it from
what the Minister said today, for people who will not in the end
channel it into any kind of bank account there will be an arrangement
made, which I presume will be the paying of cheques.
Q1031 Chairman: We have to move on
now but there is a concern there and a concern in Parliament as
well.
Ed Balls: Absolutely, Chairman.
As a constituency MP I completely understand that concern and
have discussed it with local post offices.
Q1032 Mr Mudie: How do you balance
your view and our view of wanting financial inclusion with a pensioner
who says, "I am happy the way I am. I want to use the Post
Office"? Do we in the end, Mr Balls, say, "Tough. We
are the Government"?
Ed Balls: The point you argue
and where I disagree is that I would like pensioners to use the
Post Office to access their money but I do not think it is right
that we should say to them, "You should have to put up with
a second-class kind of account". We ought to try and do better.
At the moment there are ways in which you can access basic bank
accounts and a number of different banking services at the Post
Office. The thing which worries me as a constituency MP is 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. That says to me that there is something
going wrong somewhere which means that we are relying upon an
old-fashioned way of providing accounts at the Post Office when
in fact we ought to be moving in a way in which people can use
the Post Office for banking services into a more modern area.
I do not totally understand why it is the case that people who
use the Post Office are not aware of the kinds of services they
can access at the Post Office and maybe that is something which
we need to discuss as well.
Q1033 Chairman: There is a lot of
meat in this issue to be discussed. I want to tie up a few points
before we finish. The Savings Gateway is now in its second pilot
stage. Are there any indications of the success of the second
pilot scheme? I say that against the background of Elaine Kempson
who told us that she was concerned that the second pilot scheme
had lost the simplicity and focus of the original scheme.
Ed Balls: I do not know whether
it has lost its focus. It is certainly the case that what we are
doing in the second range of pilots is testing some variations
around different ways of matching, different ways of changing
the monthly limits, an opening endowment, trying to get a range
of savers, but I think we are doing so building upon the results
of the first pilots which were very successful. As somebody who
was involved in the detail of the first pilots, I have to say
they were considerably more successful than we thought they were
going to be. I think this is really positive. The question is
can we use the second pilot to get some more information. There
is clearly a decision to be made then as to whether or not we
should go for a broad-based matched scheme for saving.
Q1034 Chairman: Elaine Kempson was
very enthusiastic about the Savings Gateway and she is concerned
it did not have the professional expertise and could lose its
simplicity. If you could keep that in mind.
Ed Balls: Elaine Kempson is the
pre-eminent expert in the area, so if she has concerns we will
listen.
Q1035 Chairman: Good. Last week the
FSA seemed at a loss to explain why so few companies had signed
up to offer stakeholder products through the basic advice regime.
The Treasury submission states that some firms consider the process
expensive, difficult to integrate and not suitable for work-site
sales. Why do you think so few firms have signed up to provide
stakeholder products?
Ed Balls: At the moment we do
not know the answer to that. It is still quite early to tell because
the scheme has only been going just over a year. It was striking
to me reading the transcript of the evidence last week that a
number of the commercial banking representatives were not offering
these products. Clearly it is the case that in striking a balance
between regulation and simplicity it looks to me as though we
have not got the balance right here and we are going to have to
look at it further. We have also got the MiFID Directive which
is currently being implemented which is going to require some
changes in the parameters of Basic Advice. We will look at this
further. I do not know whether in the end there is a long-term
future for Basic Advice, this is something we are going to need
to look at, but at the moment it is not persuading in any substantive
way commercial providers to come into this market.
Q1036 Chairman: You will be aware
that our Committee produced a report at the weekend on the National
Pension Savings Scheme and one of our conclusions was that stakeholder
pensions have not been successful in halting the decline in private
pension provision amongst middle income earners. First of all,
do you agree with that? Secondly, do you agree with my view that
we have got to do as much as possible to keep the FSA out of the
scheme? In other words, to keep the regulation at bay. If we keep
the regulation at bay then it is simple and it can put more for
the consumer and customer at the end of the day in their pension
pot?
Ed Balls: You cannot put the issue
of the lower than desirable level of savings amongst people on
middle incomes down to one scheme or one set of products, these
are much broader issues. We have got a White Paper coming up soon,
I think this week, which is going to set out a long-term plan
in a number of these areas. My job from a Treasury perspective,
following the publication of that White Paper, will be to pick
up a number of different issues which we will need to take forward,
whether it is hardening up green proposals or legislation or the
details.
Q1037 Chairman: Stakeholder pensions
have not been successful in halting the decline.
Ed Balls: I think looking at the
role of stakeholder pensions in the context of the Pensions White
Paper will be one of the important things I need to do in the
coming months alongside making sure that the National Pensions
Savings Scheme can build a broad base of support not just politically
but also in the industry.
Q1038 Chairman: We had a unanimous
report from our Committee on that, which was very helpful. The
Financial Inclusion Fund is administered by a number of different
government departments. Witnesses have told us that since that
happens different things come on line at different times and it
does not support joined-up thinking across different areas. Have
you sought to tackle these difficulties?
Ed Balls: I do not know whether
you are suggesting that the Treasury should take direct control
of all of these different areas. As you know, that is not the
modern role of the Treasury, we prefer to work in partnership
with other governments departments.
Q1039 Chairman: Joined-up thinking
is exactly the same.
Ed Balls: It is too early for
me to give you a proper assessment because I have only been there
for two weeks, but in my experience I would say there is a far
more integrated, joined-up approach to the delivery of the Financial
Inclusion agenda across government and departments as well as
with the wider sector than was the case two years ago. Personally
I think we can make it even better but it is much better than
it was.
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