Examination of Witnesses (Question Numbers
16 MARCH 2010
Q40 Chair: So the banks are really
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
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
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
Mr Smee: I can only give it to
you from my conversations with officials at the British Bankers'
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
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