The end of Cheques? - Treasury Contents

Examination of Witnesses (Question Numbers 40-59)


16 MARCH 2010

  Q40  Chair: So the banks are really dominating?

  Mr Smee: No, because the four independent directors collectively exercise a veto, and if they were together then the resolution would fall.

  Q41  Chair: But do you accept the concerns raised previously that the "vested commercial interests of many of the Payments Council's members in the abolition of cheques" means that the final decision on abolition should be made by an organisation that is perceived as being genuinely independent?

  Mr Smee: I hope that we will be perceived as independent because of the very strong role which our independent directors play in taking forward the agenda and in talking to users. Each of them chairs a user forum.

  Q42  Chair: I got my chequebook this morning and I just looked at it before I came and on the leaf of the chequebook it says to me in a big question, "Fed up writing cheques out?" I am not fed up writing cheques out. I think this is insidious. I think that what they are trying to do is say to us, "Look, mate, you are not on with your cheques, so we are saying to you, `Are you fed up?', and we are going to take it away from you", so we really need to look at this thing again, Paul. Let us be fair to consumers. Cheques are still good. You talk about them being in terminal decline but there are still over a billion cheques going to be produced in 2010, so you are at it.

  Mr Smee: Unbidden, consumers are writing fewer and fewer cheques. Every year there is a decline—

  Q43  Chair: Yes, but one billion cheques estimated in 2010; that is still considerable.

  Mr Smee: They are declining by 10% per annum. The issue before the board was whether we just let that decline continue or whether we sought to manage it, and the board felt, particularly in the interests of those consumers who currently rely on cheques, that it was fairer to work for a managed decline than to simply let the system decay.

  Q44  Chair: But, listen, let me give you the facts. The cheque is still the second largest means of payment by value of payments. Cheques accounted for £1.4 trillion worth of payments in 2008, behind only automated credits, which had a total value of £3 trillion, and the Payments Council estimates that direct debits will overtake the cheque by this measure in 2012. If you have got £1.4 trillion worth of payments it is beyond belief that you are saying it is in terminal decline.

  Mr Smee: But if you look at the pattern which has continued since—

  Q45  Chair: I am not talking about the pattern. I am talking about the volume. The volume is there and that is an important thing.

  Mr Smee: But the volume is falling year on year, and I think the question for us is do we try and help consumers come to terms with the fact that the cheque volumes are dropping or do we just wait and sit around and see what happens? We expect the volume by 2018 to have dropped by a further half and the board felt that it was far preferable to have this done in a managed way.

  Q46  Chair: Another fact: business cheques peaked in 1997, you say, but the cheque was still the largest means of business-to-business payments by volume in 2008, so the facts do not support your case. There is no terminal decline here at all. Maybe there is a managed decline by yourselves and the industry. That is different.

  Mr Smee: I do not think there is any action we could take to reverse the decline in cheques because consumers and users are voting with the way in which they make these payments.

  Q47  Mr Fallon: But your members benefit from accelerating the decline.

  Mr Smee: They do, but so do many businesses. If you look at the economic benefits of moving to more efficient forms of payment mechanism, a lot of the benefit falls to corporate business Britain.

  Q48  Mr Fallon: But let us be clear: what gives you the right to decide this?

  Mr Smee: First of all, I think we have been set up to look ahead, and this is all about looking ahead and planning for the future. Second, whatever we do is done very transparently and very much in consultation and discussion with those who use cheques.

  Q49  Mr Fallon: Why was your decision not supported by the British Bankers' Association?

  Mr Smee: I do not think the British Bankers' Association expressed an opinion. My belief is that they do support the Payments Council in this decision. They tend to leave matters to do with payments to the Council.

  Q50  Mr Fallon: Where is the evidence for that?

  Mr Smee: I can only give it to you from my conversations with officials at the British Bankers' Association.

  Q51  Mr Fallon: They have not provided any evidence to this Committee that they support this move.

  Mr Smee: Right.

  Q52  Chair: You see, this reminds me of the ATM machine issue, Paul. We were told that ATM machines were going to be available for 24 hours and then there was a charge on the ATMs, the volume was up and people said you could not do anything about it. This Committee had an investigation into ATMs. We then got it on record, there was a public policy issue, that there would be a commitment from the industry to keep the free ATMs. Notwithstanding that, they made 600 free ATMs in the country and the example from our point of view as a Committee was that here was an issue which was a real fudge. There were certain players in the industry who wanted to go along a certain line but when a parliamentary committee went and looked at it we clarified the public policy and everyone agreed to that public policy. For the life of me I cannot see anything other than a fudge here, a managed decline and the consumer is going to get second best here. I suggest to you that you really look at this issue again and come back to the next committee in Parliament because I do not think that Parliament should forget about this issue.

  Mr Smee: I am sure that Parliament will not forget it, and I remember the work that you did over the free ATMs. If I can make one comment, this is subject to a review in 2016 when we have said that alternatives to cheques must be available, accessible and actually being used before the decision to close the cheque clearing in 2018 is confirmed. This has always been seen as a target for exactly the sorts of reasons which you have mentioned.

  Q53  Mr Tyrie: I think it is very important that you should be given an opportunity to set out what the public benefit of these changes will be. What estimate have you made of the public benefit in cash terms? How much do you think it will be?

  Mr Smee: From the cost/benefit work that we have done, and we have looked at international comparisons in doing it, we reckon that businesses will be able to save around £750 million a year doing that.

  Q54  Mr Tyrie: What proportion of that accrues to banks?

  Mr Smee: That is a separate figure.

  Q55  Mr Tyrie: But the one is a part of the other, is it not?

  Mr Smee: No, this will be an additional figure. I was looking at business users in saying £750 million.

  Q56  Mr Tyrie: So the total economic benefit calculation you have done excludes benefits to banks?

  Mr Smee: We have produced a figure for benefits for banks which is £200 million.

  Q57  Mr Tyrie: So the £200 million is separate from the £750 million?

  Mr Smee: It is.

  Q58  Mr Tyrie: So therefore the total benefit to the UK economy is at least £950 million, according to you?

  Mr Smee: That is correct.

  Q59  Mr Tyrie: Who has taken a look at these figures to verify them?

  Mr Smee: We have made them public so that any commentator can see them and look to—

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