Ministries' clash poses threat to Universal Bank
A clash between the Department of Trade and Industry and the Treasury over the future of sub-post offices is threatening to undermine next year’s launch of the Universal Bank.
The new bank is to be set up under a deal between the government and high street banks to handle social security payments and serve people excluded from the banking system.
Britain’s main banks agreed in May to pay Pounds 180m over five years to subsidise Post Office-based banking services for the poor after a year of argument with the government.
The service will comprise two main parts. It will allow basic accounts, run by banks but without overdraft facilities, to be used at post offices, through which benefits can be paid; and it will offer a Post Office card account, a kind of electronic benefit book.
Whitehall insiders say Treasury officials want to restrict the card account, which the government would have to finance, to the 2m-4m benefit claimants who do not have a bank account.
But it is understood that research by Consignia, the renamed Post Office, suggests 6m people would prefer to receive benefits through the card account.
Industry observers say sub-postmasters and customers would be up in arms if access to it was restricted.
Inside the DTI, there is a fear the National Federation of Sub-Post Masters, an effective lobby group, would be able to whip up fear of another wave of rural post office closures if there is not wide access to the card account, which its members believe provides the strongest link between customers and sub-post offices.
A related issue is what incentive, if any, the government will offer to entice people to open the basic accounts, which are expected to be unprofitable for the banks.
One possibility is to reward people who open them by placing Pounds 10 in the account. Another is to pay sub-postmasters to encourage people to open them – a solution that is likely to go down better with the sub-postmasters.
DTI insiders see these issues as a test of the ability of Patricia Hewitt, trade and industry secretary, to stand up to the Treasury.
She has said she wants to be the Treasury’s “partner” in pursuing the government’s enterprise agenda, but it is a relationship that Gordon Brown, the chancellor, tends to dominate.
The agreement to create a Universal Bank followed a lengthy stand-off between the government and the banks and fell short of earlier plans to create a stand-alone Post Office bank to fill the Pounds 400m revenue shortfall it faces when the Department of Work and Pensions switches to electronic benefit payments in 2003.
Copyright: The Financial Times Limited
