The end of Cheques? - Treasury Contents

Examination of Witnesses (Question Numbers 140-154)


16 MARCH 2010

  Q140  Mr Breed: Mr Smee, many of the banks operate on a multinational basis and therefore have branches and operations in other countries. Very many other countries in the world have gone through the process of truncation, so they have been perfectly happy to accept the truncation aspect in other countries and indeed operate within it. Why have they refused in some way, over 20 years now, to get to grips and deal with it in the UK?

  Mr Smee: I think there have been many truncation projects, some of which have been more successful than others; they have not been by any means a success in every jurisdiction. I think if you look here, to come in with truncation now when volumes are declining by 10% per annum would be the wrong time, and I do not think it would particularly deliver benefit.

  Q141  Mr Breed: But you have not produced any evidence as one of the major alternatives.

  Mr Smee: I think if you look at the rate of decline and the time it would take to get a project of this complexity and scale in you would be dealing with very small numbers and truncation was introduced for really when cheques were a very mass instrument, much more widely used than they are today.

  Q142  Mr Breed: If you look at some of the countries that actually operate on truncated systems now they do not have anything like the cheque usage that other countries have and they find it perfectly satisfactory.

  Mr Smee: The key thing is the timing. I would just point out that the OFT Task Force did investigate truncation and said that it did not think that it would be an appropriate way forward for the UK.

  Q143  Mr Breed: Because there has been a lot more discussion since your announcement and such in the media and everything else, apart from the banks who else has applauded this and cannot wait until they get rid of the cheques?

  Mr Smee: We have had some very positive comments from some Government departments.

  Q144  Mr Breed: Government departments?

  Mr Smee: Yes. I think we have had some comments—

  Q145  Mr Breed: That is not to say it is going to be terribly helpful to your case, but still! So in terms of the broad thing who has said to you, "This is a great idea, let us get rid of the cheques"?

  Mr Smee: Significant percentage of large businesses; people within the vendor community who are developing other payments mechanisms. I think we have also had from several of the witnesses you heard earlier a comment that they would prefer to see the decline managed than left alone to run its course.

  Q146  Chair: If there is a choice whether to have cheques or not, when you say they would prefer to see the decline managed, you have not made up your mind on that, have you? You will give people a choice whether they want to keep cheques or not?

  Mr Smee: As I said, in 2016—

  Q147  Chair: No, that is very important, Paul—very important. Give people a chance to decide whether they want cheques or not. If there is going to be a level playing field here that is a very important and fundamental question.

  Mr Smee: I think between now and 2016 we will have to be satisfied that the three triggers which we announced have been satisfied.

  Chair: You have not done any consumer focus issues to really determine if the nation wants it. I can tell you, as Chairman of the Treasury Committee, I want cheques to be kept, okay. And I am sure if you go out and talk to people they will tell you that they want cheques.

  Q148  Sir Peter Viggers: I just wonder whether you know that lawyers do not talk about death as being caused but being accelerated. Have you come across that before?

  Mr Smee: I have, yes.

  Q149  Sir Peter Viggers: Because we are all in terminal decline, the cheques are in terminal decline but then you and I are in terminal decline as well and we would not exactly welcome a programme which sets a target date for closing us down, that is the important point I am seeking to make! Do you accept that even on your figures if the use of cheques declines by a further 47% by 2018 there will still be about £600 billion of money being moved every year by cheques?

  Mr Smee: I do accept that and I believe that, if that was the position I doubt if the cheque clearing would close. However, we are seeing people migrating to more efficient ways of making payments. They are doing it; they are not being forced into it. Our interest is to ensure that whilst this is happening in most of the economy other groups are not left out in what is happening as part of change.

  Q150  Sir Peter Viggers: I see you are tasked, according to your brief, to ensure that the UK payment system and services meet the needs of users, payment service providers and the wider economy, which indicates to me that your brief is to be objective; yet further on, under the review process, you say, 2014, "There must be significant progress in reducing cheques in areas where alternatives are already available." I wonder whether you do regard yourselves as being objective, or whether you feel that you have made your mind up and are campaigning?

  Mr Smee: No, I do not think we are campaigning because I think the key issue by 2014 is to see that, where there is an alternative, consumers are willingly using it. So they are not being left in the lurch but they are moving to a new form of payment instrument, which they may well find more helpful and more efficient and more effective.

  Q151  Chair: You say that people are not being forced into it, but try paying utility bills by cheque, Paul.

  Mr Smee: I think many utility bills are paid by cheque.

  Q152  Chair: A number are not.

  Mr Smee: But that is not something which we have driven.

  Q153  Chair: We want to be precise with the language. You are saying that you are not forcing people into anything, but some people would say that you are limiting their choice and that is a form of coercion.

  Mr Smee: I think there are a lot of people as well who are seeing the advantages of alternative methods and disadvantages of cheques.

  Q154  Chair: I thought this was going to be a quiet session and I thought that you were going to have the opportunity to laud exactly what the Payments Council were doing but there are quite a lot of issues of real concern here, Paul. Let me go over some of the things I have picked up this morning. First of all, we are not convinced that cheques are in terminal decline and I think you really have to reappraise that. It is still the second largest means of payment and even by 2016 there will still be two million cheques each day issued. Your cost benefit analysis appears to have all the benefits and none of the costs, so therefore I want you to look at that cost benefit analysis, subject it to independent scrutiny and share it with this Committee in the future. What we have heard from previous witnesses is that vulnerable groups, such as the elderly or housebound, seem to be affected, as well as small businesses and charities. So you really need to go and engage with these people to try and understand what our concerns are. The issue of cheque fraud—the one I had with Sandra—that is a small percentage of other sorts of fraud that we have seen, despite the cheques' current importance, and it shows from the figures that Sandra has given that you can stop fraud with cheques and so that is a good way. You talk about market forces; this looks to us like forcing the market. Colin's point that the board is dominated by the industry with 11 members and, as your colleague said, you have not used votes yet so it does not seem a very democratic approach to it. We would like that proper cost benefit analysis and we want to know that consumer preferences will be respected. Lastly, can I say that it is odd you have decided to move towards the end of cheques before alternative payment methods are available? There are a host of questions there and I would like to think that this Committee, coming near to the end of this Parliament, has put this on the agenda and we will invite you back to ensure that there is going to be a meaningful consultation, we get this issue right, that choice is a fundamental issue for the consumer and the playing field is levelled between the consumer and the industry.

  Mr Smee: Thank you, Chairman. I never come to this Committee expecting a quiet session!

  Chair: Thank you.

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