§ 7.31 p.m.
§ Lord Graham of Edmonton rose to ask Her Majesty's Government:
§ Whether they are aware of the present intention of the Link bank network to impose new charges on users of cash machines; and whether this would be consistent with the Government's policy to combat social exclusion.
§ The noble Lord said: My Lords, I begin by declaring an interest. I am the chairman of the United Kingdom Co-operative Council, an interest which appears in the Register of Interests. I do so especially because the Cooperative Bank is a member of that council, as is the Co-operative Insurance Society, the Co-operative Wholesale Society and all other expressions of the Cooperative enterprises. I also declare that I am a user of Nationwide's services. I can do no other; I did so even when it was called the Co-operative Permanent Building Society.
§ The timing of this short debate may or may not prove to be significant. I requested time for it some six weeks ago. As the House knows, timing is not in the gift of the usual channels but of the business managers, to whom I am most grateful. In the light of today's news, even my wording is out of date. Furthermore, like other noble Lords, I look forward to the maiden speech of the noble Baroness, Lady Greengross.
§ We are considering nothing less than a case of 21st century daylight robbery. Perhaps it is the first, but, sadly, it will not be the last. In my view, it is motivated by that most potent of basic instincts; greed. My Unstarred Question draws attention not only to this breathtaking exercise of corporate power, but also to the challenge it presents to the Government's strategy for giving those in need at the bottom of the pile some chance to share in the value of the banking world. In modern jargon, they are the socially excluded; deprived by virtue of their economic plight from enjoying, among other things, access to a bank account. We all know that that is the equivalent of a passport out of such exclusion into the modern world.
§ It is fashioned by many forces, but, in this context, shared by the action of the world of banks, which have presided over a resolution in which the typical person has been driven to rely on access to, not banks, not counters, not chequebooks, but, increasingly, the ATM; the hole in the wall. By their decision to exploit the situation, the large banks, led by Barclays, stand condemned as the modern "Hole in the Wall Gang". It is not only daylight, but modern highway and "high street" robbery as well.526
§ The House is entitled to hear the basic facts, which are these. In 1985, the Link network was established to enable some large building societies, including the Abbey National, Nationwide, Girobank and the Cooperative Bank, to share access to their cash machines. Since then, the Link network has grown and grown. A system of intercharge fees between Link members ensures that each bank is compensated for the cost of its machines being used by the customers of another bank. The Co-operative Bank, for instance, pays around 30p to another bank or building society when its customers use a competitor's machine, but it does not charge the customers in any way. It does not need to. It looks upon that use as part of its overall cost structure, paid for out of the profit it makes from using its customers' money. Why should banks charge, exorbitantly and outrageously, above the cost to them of providing this service? It is a charge for asking for some of your own money.
§ Today, there are some 27,000 cash machines, access to which is created by the 34 banks and building societies in the Link partnership. From the beginning in 1985, when customers were not charged for cash machine withdrawals, we have moved to a situation in which certain banks charge their customers a so-called "disloyalty" fee for using other cash machines. Subsequently, many Link members have—regrettably, in my opinion—demutualised and have begun to introduce disloyalty charges.
§ Make no mistake, it was that move which first drove a coach and horses through the principle of free cash machine withdrawals. But the amount of£1.50 per transaction cannot possibly bear any relation to the actual cost. It can be justified only on the basis of profit-making and it undoubtedly falls most heavily on those who can ill afford to pay £1.50 when they take out cash. Imagine a small account holder needing to withdraw £10, say, twice a week. The on-cost is outrageous.
§ Why do customers remain with such banks or building societies? The first reason is inertia; changing bank is too much trouble. Secondly, there is a lack of information. Customers are not informed of the disloyalty charges until they appear a month later on their bank statements. Barclays Bank officials told me today that they strongly favour transparency, and I welcome that.
§ I use this short debate to reveal the murky waters of how some financial institutions use their market power to the disadvantage of those for whom they profess to cater: not only the socially excluded, but their own customers.
§ When we talk about cash machine users, we are not talking about a small minority. As a result of banks having closed hundreds of branches and forced customers to use ATMs, about 70 per cent of the cash people use in Britain today is taken from cash machines. Almost eight in 10 of the adult population has an ATM card. There are around 2 billion cash machine withdrawals every year.527
Therefore, we have a system which, according to press reports, has been categorised by Don Cruickshank as,
inefficient. anti-competitive and socially exclusive".
It is the intention of the big banks further to distort this unfair situation by adding an additional £1 charge to the £1.50 already paid by many customers. Many of those customers are at the bottom of the pile and do not deserve this imposition. Quite frankly, neither they nor any other users of ATMs should have to bear this unfair charge; a charge used substantially to boost already swollen profits. The Co-operative Bank absorbs its cost of 30p per transaction. Why cannot others? Mervyn Pedelty, its chief officer, put it like this:
The reported moves by Barclays to charge other banks £1 for withdrawal is very disappointing when we all should be working towards improving customer services. It must not be forgotten that within Link there is already a system of interbank charges whereby we already pay other members to meet the costs of them serving our members. We therefore think it is wrong that Barclays feels that it needs to raise additional profit from withdrawals".
I would simply add that the operating profits of Barclays Bank increased in 1999 by 49 per cent to the figure of £2,942 million; nearly £3 billion. Why, in the light of such profits, Barclays wants to impose the £1 per use charge is beyond me. Today, its officials told me that the change to £1 per transaction would result in an increased cost to the bank. I note what it says, but I am more concerned about costs to poorer people than I am about the profits of Barclays Bank or any of the other big banks which support it.
§ I conclude by asking my noble friend whether he can comment on the accuracy of the press reports on Don Cruickshank's thrust of endorsing surcharges which will open the doors to charges for all. Will my noble friend support me in calling for a return to free cash machines for all? When the principle of surcharging is conceded, will the Government accept that 30p is the top charge to be tolerated?
§ Finally, will my noble friend take this opportunity to deny press reports that the 4,000 cash machines being installed in post offices may levy charges for withdrawals? Opening up banking in rural and deprived areas is a step in the right direction, but it needs to be done in such a way that encourages the prudent and does not pander to the feckless or the profligate; nor must it result in swelling the profits of those who already enjoy market domination.
I understand that today the Link organisation has accepted the proposal to introduce surcharging. I endorse the words of the chief executive of Nationwide, Brian Davis:
It is a sad day for consumers and for the financial services industry which has passed up the opportunity to listen to its customers and others".
Nationwide and the Co-op Bank intend to maintain their free withdrawals policy. They need the support of the Government. The socially excluded need someone to stand up for them in the face of this corporate bullying. I look to the Minister for support in this matter.
§ 7.41 p.m.
§ Baroness Greengross
My Lords, I want to begin my maiden speech by thanking noble Lords on all sides of the House, as well as the Officers, for their extraordinarily warm welcome to me and for their efforts to make me feel at home and to give me guidance and advice. I am beginning to learn about the conventions of the House and even a little about the geography, although that is more difficult.
Having worked so closely with Peers and Members of the other place for many years in my role as Chief Executive of Age Concern, it is a great privilege and honour now to be a Member of this House. I intend to play a full and active role here in the years to come, especially once I retire from Age Concern later this year. I am particularly grateful for the interest and active support that the House has given over the years to issues concerning social inclusiveness and the protection of disadvantaged people across the spectrum of society.
When thinking about what I was going to say this evening, I was reminded of a very distinguished Member of your Lordships' House, the late Lord Seebohm. He was an inspiration to me. He was Age Concern's first president and I met him in the late 1970s when I joined the organisation. As a former chairman of Barclays Bank, he combined the skills needed to head up one of our leading banks with an independent, keen and objective mind. His report on the future of social services was in its time both radical and innovative. That balanced approach to life was reflected in his very modest lifestyle and caring and tolerant approach to everyone who was privileged to know him.
My many years in the field of ageing have, I hope, given me some understanding of the needs of older people, whose numbers are growing rapidly and whose position, power and aspirations are changing as the balance of our population shifts dramatically. I have worked continuously to change negative attitudes towards ageing and older people and to improve the quality of later life. I also previously worked with vulnerable children and young people, combined with an academic career and a period in the commercial sector here in the UK and across Europe. Therefore, my interest in social exclusion spans most of my lifetime and all areas of major public policy.
Therefore, I am grateful that the noble Lord, Lord Graham, secured this short debate to call attention to proposed practice in this particular aspect of banking. I believed that it was an appropriate early occasion to make my maiden speech to your Lordships. I, too, am concerned that many banks and building societies might seek, or seem to be intending to seek, to levy quite heavy charges on users who do not hold accounts with them. We live in a technological age where funds are accessed increasingly through the "hole in the wall", as the noble Lord, Lord Graham, said, rather than over the counter.
Customers who lack transport or who have mobility restrictions could be particularly disadvantaged. What should mean greater flexibility and choice will be no 529 choice at all for people who have only one cash machine within easy reach of where they live. We must ensure that a new and vulnerable public—those who previously kept their money under the mattress or in the teapot and who now benefit from the security of a bank account for the first time—are not disadvantaged by punitive charges every time they withdraw some of their modest income or savings.
Our older population, which is growing fast, is not homogeneous. It encompasses both the richest and the poorest people in our country. Older people own 80 per cent of the wealth that is now in private hands, but almost half of our pensioner population still relies on the state pension and benefits for almost all its income. A new and substantial proportion of older people is also on the margin and would be among those hardest hit by the Link proposals.
Approximately 80 per cent of older people now have bank, building society or post office accounts. Of course, many will hold accounts with Link, including the Post Office Girobank itself (now part of the Alliance & Leicester). No doubt many more will do so in the future as the Post Office moves to automated payments. Might they in effect be charged for obtaining their state pension, especially if they live in a rural area or a small town where there is only one bank or post office with a cash machine? It would be bad enough to be charged for withdrawing other savings but it seems totally unacceptable to be charged to obtain one's pension. It is not difficult to understand why older people will see a charge of, say, £1 or £2 to withdraw £20, or even their weekly state pension, as totally unacceptable.
Well over half of all state pensioners still collect their pension in person in cash from their local post office every week. The sub-post office, which has long been important to many people, is also under threat and in our rapidly changing world it is very important that everyone should be ensured easy and equitable access to their own precious savings and income.
However, I also wish to be positive. It is dangerous to see people who are deemed to be socially excluded by policy makers as those who do not have bank accounts, do not know what the Internet is or do not want to learn something new when they are 65 or 75. Unprecedented longevity is a triumph to be celebrated at the start of the new millennium. Older people are not as technophobic or afraid of the modern world as the stereotypes would suggest. Those same older people who do not have a bank account might just also be surfing the net or learning a new skill. Only last week the DfEE announced a competition to find Britain's oldest learner. That is also why Age Concern's own Baby Boomer Bistro—the on-line chat room which we run—is an enormous success. Older people are the boom sector for IT. They are the fastest growing group of users—a fact recognised by the Government with initiatives such as the Learning Network, part of the Better Government for Older People project. This is all about social exclusion, especially of older people, but not because they need to be socially excluded.
530 Finally, the Government must be congratulated on beginning to address the needs of those who are socially excluded, as must be the noble Lord, Lord Graham, on making the connection with financial services. The Social Exclusion Unit itself had to be reminded that social exclusion does not stop at the age of 60 or 65. In fact, it can worsen with isolation and loneliness in later life. Therefore, I hope that these efforts will not be derailed by others, whether it be banks which charge people an undue amount or, indeed, anything to withdraw their own cash when post offices are closing down in local communities.
We have all heard that the Link network is to go ahead with charging and that it can decide on the level of charge to be imposed. If I were allowed to be somewhat more controversial than I am tonight, I should say that that is a missed opportunity and a very sad occasion.
I hope that, as Lord Seebohm and others sought to have, we may be able to have a similar balanced approach in welcoming the new technological innovations but we should build in appropriate safeguards to protect vulnerable people and, in particular, those who are older, so that they can all, whatever their socio-economic status, echo the recent words of the United Nations Secretary-General, Kofi Annan, when he said:I am an older person and I am proud of it".
§ 7.51 p.m.
§ Lord Lucas
My Lords, it is a great honour to be chosen to congratulate the noble Baroness, Lady Greengross, on such a fine maiden speech. In the course of her life and work, the noble Baroness has achieved a great deal for other people. As a youngster, she championed the cause of the aged. As head of a single-issue pressure group, the noble Baroness is notable for having spoken to other groups about other interests widely separated from her own and for having listened to them. She has thereby built a constituency of interest and common cause which has enabled her to make an enormous difference to the lives of many people. It is a great pleasure that, as the noble Baroness enters the age at which she can benefit from all that she has done, she is allowing us to benefit from her presence here. We look forward to hearing from her many more times in the future.
I also congratulate the noble Lord, Lord Graham of Edmonton, on giving us the opportunity for this debate. He draws our attention to a matter which is crucially important; that is, that we should make sure that the structures of our society, both government and commercial, are such that they will allow access back into the mainstream of our society for people who find themselves excluded or on the edge of it.
In the cause of regulation and consumer interest, we have allowed the banking industry to develop a particular form of monopoly. That is not necessarily bad. We have gained a lot from the restrictions which we have placed on people's ability to open and operate banks in this country. But any form of monopoly such as that necessarily has potentially bad consequences 531 for the consumer and must be monitored. I am delighted that the Government appear to be doing that, but it seems to me that we should all accept that that is the right thing to do—that we should keep an eye on what banks are doing.
The banks in this country have a long history of soaking the private customer so that they can lose large sums in property or financing overseas governments. There is nothing new about the recent events but it is something of which we should be particularly aware because, whereas in the old days the poor were not so dependent on having bank accounts and being able to use them, now, in modern society, that is changing and it is becoming much more essential for anyone who wants to get on in the world we are creating to have access to banks and to have reasonably priced access to banks.
The principal ways in which people interact with banks these days are by having a card, which we are not discussing this evening but it is another source of problem—the difficulty which some people experience in getting even a debit card—and once you have that card, being able to use it to get cash out of your account at a reasonable price. That obviously involves any up-front charge made for the use of the ATM but also the charges back in the bank which are imposed on the management of the account.
If we allow the banks to impose what amounts to totally unreasonable cost penalties on the poor for using their accounts, we are making it much more difficult for those people to enjoy the sort of life we wish them to enjoy and which, in many cases, we are paying our taxes so that they should enjoy; and we are making it a great more difficult for them to find the extra pounds, the extra money, to make their lives better which surely should be the object of all our policies.
What do we need to do in this case? It is quite clear that we need to limit charges for the use of ATMs to an amount which is reasonable. The noble Lord, Lord Graham, said very clearly that the figure is 30p. That is what banks charge each other. They would not accept that charge unless they thought it was reasonable. They all have experience of using ATMs. To suggest that something which is effectively costing 30p should be sold onto the customer by what is often, locally, a monopoly supplier at £1.50 or £2.50 is completely unreasonable and is the sort of thing to which the competition authorities, very properly, should take a severe attitude.
We must also make sure that the ability to own and operate ATMs is widely available. These things are not generally a danger to customers so long as they are operated by someone reasonable. But it can prove quite difficult to persuade someone to put an ATM in a local shopping centre or a small town. My local small town in Hampshire—Liss—has long tried to get an ATM but no one will provide it because there are only a few banks which might be interested in providing it. Even if there is one, it will only be one. If it is a Barclays ATM, why should customers all be forced to change their accounts to Barclays so that they are not charged 532 £1.50 every time they take money out of the machine? In a way, access to ATMs under those circumstances becomes a service which is bundled with all the other services of the banks to the great disadvantage of the customer who should be able to choose to buy one service from one bank and different services from different banks.
We need to make charges, such as they will be, transparent. They should be evident on the outside of the machine and not something which you discover in the blink of an eye two-thirds of the way into a transaction on a rainy February evening.
I should be grateful if the Minister would confirm that we should be able to deal with this matter by regulation, because banking practices will change and change fast. I hope that the Minister will be able to confirm that regulations can be made under existing legislation or, if not, that we shall find an early opportunity to legislate on this matter.
§ 7.57 p.m.
§ Lord Haskel
My Lords, I too am most grateful to my noble friend Lord Graham for introducing this debate. I am grateful to him for two reasons: first, because he has introduced a most interesting topic; and, secondly, because he has provided us with the opportunity of hearing an excellent maiden speech from the noble Baroness, Lady Greengross. It was thoughtful, entertaining and most enjoyable. I too am most grateful to the noble Baroness for all her work in making—shall I say?—my approaching old age more bearable and tolerable.
I too find the attitude of the banks towards cash machines—particularly, the big four clearing banks—confusing. Obviously, there is disagreement among the Link operators. Some, like Nationwide, are against charges; others, like Barclays, are for charges. So my hope for this debate is that we may have a little elucidation and explanation.
I understand that, today, the outcome of the meeting in Harrogate was that from 1st January 2001, there will be charges which will be fixed by the owners of the machines. I must confess that I am somewhat surprised. I was under the impression that we had moved on from shareholder value as being the main concern of large companies. I thought that we had moved into an era when firms realised that people want to deal with an official business which is also decent and fair; and that companies want to exhibit their decency and fairness not only by supporting charities and cultural activities but also by exhibiting some idealism themselves when providing goods and services to their customers.
That is why, in recent years, companies have set out their stakeholder principles to demonstrate their ethics and integrity and their loyalty to stakeholders. That is—I use the modern term—the modern concept of branding. I am at a loss to understand why the big four banks seem to be ignoring this point and seem to be indirectly reintroducing bank charges through the use of cash machines. Have their soaring profits made them careless? My noble friend Lord Graham gave us 533 the numbers. This seems dangerous ground. The economics of banking are changing. The socially excluded, too, can become banking customers.
I understand from recent figures that only 22 per cent of current account customers change banks. That may well have been true in the past. However, in the recent past we had far less telephone banking than today. We did not have banking with supermarkets and chain stores. Supermarkets now offer cashback. How long will it be before garages, for instance, offer cashback or operate their own cash machines? Surely sooner rather than later cashpoint machines will do other things than provide cash and statements.
What about Internet banking? The report issued by PriceWaterhouse Coopers dated 25 February forecast 50 new Internet banking offerings this year alone. It seems to me that these new kinds of service are more likely to help the socially excluded. They will not be helped by the main clearing banks, which are interested in their better-off customers. That is understandable. They can sell to such customers all kinds of other products: mortgages, health insurance, life assurance, home insurance, pensions, hire-purchase and travel arrangements. You name it; they will sell it.
The socially excluded cannot afford most of those products. That is why the banks are not really interested in them. Like the noble Lord, Lord Lucas, I hope that the regulators will take a look at the Harrogate agreement. The consumer panel of the FSA should be concerned about the high prices charged to customers. Mr Don Cruickshank has said that a reasonable charge would be 15p to 30p instead of up to £2.50, which apparently can be charged. The Office of Fair Trading should be concerned about banks discriminating against different classes of customer. They seem to be discriminating between one set of users of cash machines—their own customers—and another set of users—other banks' customers.
With impeccable timing, upon which my noble friend Lord Graham should be congratulated, The Competition Act comes into force tomorrow. The Competition Commission should be interested in exploring whether the agreement is contrary to Article 84 and should be registered. I suspect that some smart lawyers have advised that, as each cash machine owner fixes its own charges, the agreement is not anti-competitive. But regulators also need to decide whether the larger banks, which own most of the cash machines, are guilty of market abuse by discriminating, with high charges, against the small banks, which own far fewer machines.
While all that is going on, customers can take their current accounts elsewhere, and will probably do so, encouraged by the new sources of cash being made available to them. Meanwhile, it will be nice to see the banks being more transparent about cash machines. I understand that there will be a warning to customers about to use a machine telling them what the charges will be and giving them a chance to change their mind. 534 I welcome that as a better deal for customers. I also welcome the promise by Co-op Bank and Nationwide to refund any charges.
I suppose that banking is becoming a public utility, such as water or a public service like the Post Office. I believe that the noble Lord, Lord Lucas, implied that. It is recognised as such in California, where it is subject to a kind of universal service obligation. There is an obligation to give access to banking for all, as has been asked for by my noble friend Lord Graham. We may eventually see that here if the free market does not operate. Free market competition eliminated bank charges. I hope that the Harrogate agreement will not be a way of reintroducing them.
§ 8.4 p.m.
§ Baroness Dean of Thornton-le-Fylde
My Lords, I join fellow noble Lords in welcoming this short debate. I particularly thank my noble friend Lord Graham, whose timing is impeccable in view of the decision taken today. That is no surprise to me. I was on the Back Benches when he was Chief Whip. His timing was certainly extremely helpful in many a debate then.
§ Baroness Dean of Thornton-le-Fylde
I also welcome the speech of my noble friend Lady Greengross. She has vast experience and the House will look forward to her contributions. Perhaps in future my noble friend will be more controversial than she has been allowed, by custom, to be tonight.
The current development by the banks is simply a fight for the customer without any concern for the social implications of what they are doing. It is about abuse of market dominance. The present confused situation and the proposals by some, but not all, of the banks will worsen social exclusion. That will be particularly so in rural areas and in areas where the banks feel they do not have a place. I refer to some of the sink estates and poor areas of this country. What the banks are doing is appalling. It almost goes back some years to the review about bank charges. The public were absolutely astonished at the way in which they were being ripped off by the banks, of which they were customers.
I changed what I planned to say after receiving a press release from Barclays. Rarely have I been so enraged by receiving something. It contains the headline that the "Link decision" is a victory for consumers and for common sense. If that is not an abuse of the English language, I do not know what is. It states that consumers will have choice. I do not know what choice consumers have in rural areas. They may be miles from a cashpoint machine. There may be only one machine which may not belong to the bank of which they are a customer or the bank into which their pension is paid. They will have no choice. They will have to pay a fee. Depending upon the bank, they may also have to pay a so-called "disloyalty fee". It may be that they are not drawing from their savings 535 but from their pension. Many people use banks in that way and do not hold substantial amounts of money in their bank accounts.
This decision today is not a victory for consumers. It is an abuse of consumers and of consumer choice. The press release states that customers will know in advance of any charges. However, we know from the work carried out by Don Cruickshank, but, more importantly, from what the banks are charging each other at the moment—that is, 30p—that they will charge fees which cannot be justified to their customers and all other people who use the machines. I agree strongly with the comments of the noble Lord, Lord Lucas. We certainly need regulation. If banks are to act in this manner, which is market-dominance-led, there should be regulation.
The press release states that user fees will encourage investment in bigger and better cash machines. It goes on to state:A switch to user fees is likely to result in the reduction of income".That statement is completely contradictory. The press release does not state what the charges will be. It does not state that the disloyalty payments will discontinue, nor that there will be a guarantee of more machines. By implication, it states that the devil will take the hindmost as far as the consumer is concerned. The biggest and most powerful banks will edge and elbow the smaller banks out of the market. Consumers may go to that one hole in the wall in their rural area or out of their area if they live on one of the dreadful sink estates. They will see the name of the bank on the hole in the wall. They will know that they do not have to pay a charge if they are with that bank, and will be encouraged to change their account to that bank. We will then see less consumer choice and much more market dominance than we have at the moment.
Today has been a bad day for the consumer; a bad day for social inclusion; and a bad day in the long term for the banks themselves if we say that we will not accept these decisions. I see the present Government, of all governments, as the champion of the consumer. When my noble friend replies to the debate, perhaps he can give us some assurances in relation to the regulation of the high fees being charged. This may involve the private sector. but sometimes the consumer needs protection from market dominance.
One of the anxieties in the debate in relation to post offices and people obtaining their benefits from the hole in the wall is what the charges will be and also what choice the consumer will have.
§ 8.10 p.m.
§ Lord Newby
My Lords, like other noble Lords who have spoken, I am extremely grateful to the noble Lord, Lord Graham of Edmonton, for initiating this debate. Even if he did not know how appropriate the time was, he is to be congratulated because it is so appropriate. Equally, it was a delight to listen to the maiden speech of the noble Baroness, Lady Greengross. It must be said that, if the noble Baroness 536 had been making it on many other subjects in the dinner break, I might not have heard it, so I am doubly grateful that she chose this subject.
I am sure we all agree that many aspects of the present situation are unsatisfactory. First, the scale and extent of disloyalty fees; 85 per cent of transactions today are covered by disloyalty fees of up to £1.50. Secondly, most people making those transactions do not realise the scale and extent of the fees. There is a tremendous lack of transparency in that regard. Thirdly, we all agree that the uneven spread of cash machines is unacceptable, both in terms of areas of social exclusion and in rural areas. Fourthly, we agree also that it is unsatisfactory to impose a new fee structure, particularly one in which the fees bear no relation to the marginal cost of making a transaction.
We know what is wrong. In general terms we also know what we want to see. First, we want maximum and increased coverage of cash machines. Secondly, we want to see maximum transparency so people know what they are paying. Thirdly, we want to see the greatest possible degree of competition. Fourthly, we want to see minimum, and arguably and hopefully zero, costs for making a transaction.
How do the Link decisions announced earlier today meet those criteria? On one count only—namely, transparency—do they do so unambiguously. That is a move we should welcome. When we come to increased coverage, the best one can say is that the jury is still out. A number of noble Lords made the point that there is no guarantee that the banks will increase the number of cash machines, and certainly not the number in the most deprived areas. They claim that, following a similar decision in the US, the number of cash machines either doubled or tripled in a short period of time. Let us hope that we receive assurances from them that they will put their money where their mouth is and begin to expand the cash machine network in areas from which, rather than expanding, they have been withdrawing in recent years.
In terms of coverage we must also look at other activity in this area. I was talking earlier today to the National Federation of Retail Newsagents, which entered into an agreement with Euronet to introduce cash machines into newsagents in areas where bank cash machines are currently absent. That is a welcome development. We should also press Link, in its discussions with the Post Office and the Government, in respect of electronic transfer of state benefits. That may produce more general cash withdrawal opportunities into the sub-Post Office network, which, by definition, reaches more people than the current cash machine network.
Understandably, the issue which rightly generated most heat today and in the run-up to the Link decision related to cost. I share the view expressed by every other noble Lord that for large banks to seek to charge £1 is excessive, particularly in relation to the cost of transactions and the amount likely to be withdrawn by poorer customers, not least students and young people. We seek to encourage them to open bank accounts. Other noble Lords may have received, as I 537 did, an analysis undertaken on behalf of M&G of the proportion of adults in this country who have savings. Apparently, nearly 25 million adults have less than £500 in savings. Many prefer to go into debt when confronted with unexpected expenditure. That cannot make financial sense and we should be doing everything we can to encourage them to open bank accounts. The prospect of being charged 10 per cent—or possibly 25 per cent if the disloyalty fee continues as a result of today's decision—is moving things in the wrong direction.
It is difficult to be quite as condemnatory of charges at the point of use in the case of the newsagents. They are not involved with the large banks and unless there is some return for those installing the cash machines, they will simply not be installed. That demonstrates that the whole area is both confused and more complicated than first meets the eye.
I agree that extending the cash machine network is an essential component of persuading a greater proportion of people to join the banking system. But it is not the only solution. The Policy Action Team report No. 14 of last autumn makes a whole raft of proposals in this area which are being considered by both the Treasury and the British Bankers' Association. It deals, among other things, with entry level accounts and the need for better education. It rightly goes way beyond the cash machine issue. Therefore, in looking at social exclusion and formal entry of people into the financial services sector, we need a multi-faceted approach, beginning with cashpoints.
I had great sympathy with most of the points made by Don Cruickshank last week and hope that they will be acted upon. The first was that, if any charges were to be imposed, they should reflect the cost. I hope that many other banks will follow the example of the Nationwide and the Co-op and not impose such charges. I hope equally that all banks will commit themselves to a single charge across the country so we do not have differential charges between rural and urban areas, and prosperous and poor areas. As I understand it, today's decision will allow that kind of differential charging to take place.
Secondly, Don Cruickshank asked that charges be transparent on the screen. That is likely to happen as a result of today's decision. Thirdly, he suggested that the charges should not discriminate against telephone and Internet banks. That sector is changing more rapidly than many realise. Fourthly, he said that non-banks should be able to set up cash machine networks. That again is an important way of increasing competition in this sector.
However, I urge the banks to give up the disloyalty fee. Whatever argument there may have been for it has now gone. Barclays, who have been rightly criticised in a number of respects this evening, gave up the disloyalty fee last October. So people banking with Barclays will not be faced with charges of £2.50: they will be faced with charges of £1 which is bad enough, but there has been a certain exaggeration of some of 538 the charges. I hope that all the other banks which are still charging a hidden disloyalty fee of up to £1.50 now voluntarily agree to abolish that fee.
We need a broad strategy to bring the use of cash machines to socially excluded groups. It must encompass rural as well as inner-city areas and mesh in with other policy changes. In my view, doubts about the future of rural post offices and the proposed changes in the benefit system offer both a threat and an opportunity. Such a strategy should involve pressure on the banks, but it must also involve dialogue with them.
As the noble Lord, Lord Graham, said, the banks pride themselves in public of being socially aware and interested in the well-being of the communities that they claim to serve. We must now name and shame the banks and get them to act in such a way that they both reduce fees and expand networks that we believe are essential. I am not arguing for that instead of any regulatory hand on them, but I think that we need both a carrot and a stick. The Link network needs to open up its procedures and economics.
While preparing for this evening's debate, it was very difficult for me to find out what was going on and how the system works. In the interests of their consumers, I think that banks need to be more open—
§ Lord Haskel
My Lords, before the noble Lord sits down, perhaps I may point out to him that the press release from Barclays to which my noble friend referred states that the bank will abolish its disloyalty fees until the new methods of charging can be introduced with pre-notification.
§ Lord Newby
My Lords, I am grateful to the noble Lord. This demonstrates that this is a difficult and confusing area. I find it difficult to know quite what is meant, other than that they may possibly put more than £1 on the charges after 2001. I am sure that Barclays will take note of this debate. Indeed, I am sure that we shall all receive a clear, detailed letter within the next few days explaining that I cannot possibly be right in thinking that the bank will really increase its fees any further.
The real question is how we can move this agenda forward. My suggestion is not a purely regulatory one, although I believe that that is relevant. We should be asking the Social Exclusion Unit to look at this, not just in terms of analysing the problem but also of producing components of the solution and driving them through Whitehall. Perhaps I may introduce a really controversial element to the debate: I actually think that this would be an extremely useful issue for consideration by a cross-cutting committee of your Lordships' House, which I think should be looking at social exclusion. However, I do know when I am beaten. We may have to wait sometime for that to happen.
As I said at the beginning of my remarks, I am extremely grateful to the noble Lord, Lord Graham, for initiating this debate. Clearly this issue must be kept under review, but tonight's debate has made a very good start.
§ 8.22 p.m.
§ Baroness Miller of Hendon
My Lords, I must begin by declaring an interest. I, my husband, my sons and our family business have been, and are, very long-standing customers of Barclays Bank.
Many years ago there was a very successful bank advertising campaign. I cannot remember whether it was on behalf of one bank or on behalf of the bank advertising association. However, it depicted the bank manager lurking in a cupboard at the customer's home. The implication was that bank managers were not frightening but nice, friendly people who were there to help people at any time.
Bank branches have now been transformed into profit centres. Facilities that used to be given free, as a customer service—such as the provision of references—are now charged for. Working at a bank, which used to be the very epitome of a job for life where an able and educated employee—whatever his or her background—could climb the promotion ladder, is now an extremely precarious occupation as the banks and other financial institutions shed jobs, thousands at a time, and as automation and computerisation take over.
The advent of the bank cash machine, the so-called "hole-in-the-wall" machine, has further depleted the number of jobs at the bank counters. But what a boon those machines were trumpeted to be when they were first introduced, especially when the banks were closed on Saturdays. You can get cash any day and at any hour of the day or night. All you need is your card and the ability to remember you PIN number. You can even collect local currency abroad—so who needs travellers' cheques? There is even a row of those machines down in the basement of this building. Someone actually asked me whether I used them and I said that I do not use them very often because my best hole-in-wall hank is my husband. I just ask him and let him go down and use it if he is available. I always make jokes about my husband when he happens to be watching the proceedings.
It has long been theorised that, with the advent of the credit card and charge cards, we would eventually evolve into a "cashless society". I think I can predict that that will never happen—not so long as we need what I call "walking about money"; that is to say, money to buy a newspaper, a bus ticket or a drink at the local. There are still huge numbers of people for whom credit cards, bank cards or access to cash machines are of absolutely no use whatever. Because they are without bank accounts or access to credit, usually because they are too poor, they just do not have the benefit of using such things. I suppose some people could describe them as "socially excluded". However, as the noble Baroness, Lady Greengross, explained exclusive and inclusive in such detail, I feel that I can delete that part of my notes.
For a large number of bank customers those machines have become an increasingly used and necessary facility, especially with the ruthless closing of smaller bank branches in villages and high streets that have failed to meet the criterion of being a profit 540 centre. There are, of course, other means of getting cash out of your account without using a machine or queuing up at the branch. Many large supermarkets are willing to give you cashback when you use a bank cash card. But this service is not as altruistic as it sounds because it reduces the physical amount of cash that the supermarket has to handle at the end of the day and reduces the security risk. In her own small way, my mother acquires cash by asking our greengrocer, who is still old-fashioned enough to deliver, to change cheques for her.
I just mentioned handling money. It is not appreciated that this is the least profitable part of all the banks' business. In fact, they lose money to it. When the American serial bank robber Willie Sutton was eventually caught by the FBI, he was asked why he kept robbing banks. He replied, "Because that's where the money is". To be fair to the banks, which is rather hard in view of what everyone has said and the briefings and letters that have been referred to, all of those bundles of notes lying in bank tills and in their vaults are not earning the banks any interest. I suppose that that is one of the reasons why they feel they need to make this charge. The cost of installing the machines, of expanding their number, of maintaining and servicing them, of running the computer systems and of the inter-bank book-keeping that they depend on, to say nothing of the physical work that is needed to keep them stuffed with bank notes, may possibly justify some small charge.
However, we all believe that banks ought to be crediting their own customers with some of the benefits that they are getting by reducing the number of staff they need to employ and even because of the benefits that the banks get from interest on overdrafts, or from the free use of our money sitting on the current account. Even on the aspect of servicing competitor banks' customers, there is the swings and roundabouts concept because they, in turn, service yours.
I believe that the Government are having to reconsider their plans for the method of payment of state benefits. The idea of simply paying them into beneficiaries' bank accounts may not work because so many of them do not have these bank accounts. Moreover, such a scheme would destroy thousands of village post offices and the village shops that so many people need for support in isolated communities. I am not sure whether it was the noble Baroness, Lady Dean, or the noble Baroness, Lady Greengross, who made a point in this connection, but one of them said that if you actually have to pay for the service when you draw out your benefit, it really would be extremely ludicrous and most unfair.
There is, perhaps, another means of distributing small amounts of notes and coins that it is uneconomic for banks and their computer systems to handle. The local post office could operate a discretionary cashback facility to customers, which they could do even without any machinery other than the guarantee implied by the cheque card. In itself, that might alleviate the aspect of social inclusion that might be 541 suffered by the less well-off or those without easy access to cash machines operated by their own personal bank.
Given the public concern that is being expressed on this whole matter, I congratulate the noble Lord, Lord Graham of Edmonton, on having brought this matter to the attention of your Lordships' House. The only pity is the timing. For example, had this debate taken place yesterday instead of today, this House could have sent a powerful message to that same board regarding our feelings on the subject, not necessarily as individual paying customers but as a voice of the public. We should regret that we were unable to do that before the announcement was made earlier this evening.
The impending report by the former telecoms regulator, Don Cruickshank has been widely leaked, including on the BBC "Watchdog" programme last Thursday. The noble Lord, Lord Newby, mentioned some of the recommendations and I shall not go through them again. Don Cruickshank thought that the charge should be capped and low. He thought that it should not be more than 15p to 29p.
Before I entered the Chamber this evening I turned on Ceefax to see whether there was any more information available than was issued in the press release. There was mention of a charge of £2.50. I think that has to be wrong and the BBC has it wrong. The noble Lord shakes his head; perhaps that is not wrong. However, I assume that that figure is reached from the £1.50 disloyalty fee and the suggested £1 surcharge. I do not know. However, I noted in an earlier press report, which I do not have with me, that Barclays Bank abandoned the disloyalty charge in October 1999. I am not sure where that takes us. However, as I am a customer of Barclays and I have been quite tough on Barclays, I ought to try to redress the situation one tiny bit, if that is possible.
In one of the briefings Barclays stated that it thought it would take three years to implement the necessary software changes. However, I understand from the news today that this will be done by January 2001. The same Barclays briefing states,The amount of the charges should he clearly displayed on screen. Consumers can then decide, before they use a cash machine, whether or not they wish to proceed".We would certainly all agree with that. Transparency, which was not evident before, is absolutely essential. As I said a few moments ago, it is most unfortunate that we did not have the opportunity to send a strong message to those attending the meeting in Harrogate before they made their proposals today. We could have sent them a simple message summarised in just 10 words; namely, "There should be moderate or no charges and full disclosure".
§ 8.32 p.m.
§ Lord McIntosh of Haringey
My Lords, my noble friend Lord Graham expressed some anxiety about the timing of this debate. With the exception of the point that the noble Baroness, Lady Miller, has just made, I should have thought his timing was immaculate. We 542 should consider what he has achieved by tabling this Unstarred Question six weeks ago. First of all, he gets Don Cruickshank to leak the important parts of his own report last Friday.
§ Lord McIntosh of Haringey
My Lords, my noble friend did that all by himself" Then my noble friend gets the Office of Fair Trading to issue a press release on the subject yesterday. Then he gets the Link board to meet in a hot, steamy room in Harrogate from 11 o'clock in the morning until 4.30 in the afternoon, agonising over the issue which my noble friend has raised. Then, best of all, he gets the noble Baroness, Lady Greengross, to make an excellent maiden speech in this debate. I think that he has done pretty well.
The noble Baroness, Lady Miller, questions that because she thinks that our views ought to have been available to the Link board at its meeting today. Indeed, she has a point. However, I notice that although all noble Lords who have taken part in this debate have received briefing from Barclays Bank—except me—every single speaker has been antagonistic to Barclays Bank, even the noble Baroness, Lady Miller, who, like me, is a customer of Barclays Bank. At the end of her remarks, she felt some need to curry favour with her bank manager. I do not know what her overdraft is like at the moment! Therefore, I should have thought that the briefing Barclays sent to noble Lords for the debate was particularly counter-productive.
It is important to reach common ground, as far as we can, on the nature of the agreement which the Link board reached today. Certainly the resolution from the Link board meeting, which was issued as a Link interchange press release today, is pretty thin. It really does not explain much and it leaves open some questions. I believe that we can welcome some points without hesitation. As has been universally agreed, we welcome the transparency which will make charges known on screen to people withdrawing cash who will be able to change their mind if they do not like the charges which are to be levied. The Government have urged that on the British Bankers' Association for a number of months and it has taken an awfully long time to do anything about it, but let us welcome it while we can.
The decision that the Link network should be open to all—including customers from bodies other than banks and including those who do not have their own ATMs—is welcome because that will involve a new element of competition. It is much less clear what the benefit or disbenefit is of the decisions on surcharges. Indeed, it is not entirely clear what the decisions are. My understanding is that a disloyalty charge is out. A disloyalty charge is a charge made by a bank to its own customers for using a cash machine of another bank. However, as far as we can see, that will be replaced by what is called a "surcharge", which is a charge imposed by a bank when customers use machines other than those of their own bank—but that is a charge raised by the other bank rather than the customer's own bank.
543 It is not entirely clear to me that consumers will benefit from that. A charge made by one bank is just as damaging to the pocket as a charge made by another bank. In any case, the customer will pay. It is certainly not clear to me that the decision not to impose a limit on the surcharge—I understand that that decision was taken on a vote in the Link board—is to the benefit of customers. We shall have to study the decision in a good deal more detail before we reach a firm conclusion. There is even some ambiguity in the Barclays press release about whether the disloyalty charge will be abolished for good. That point was raised by the noble Lord, Lord Newby, as well as by my noble friend Lord Graham.
What do we think about these measures? Clearly, our views are only provisional until we have more detail. We welcome transparency and opening up the network. We welcome the removal of double charging, if that is the case. However, we cannot be entirely clear about that. We are much less clear that the surcharge decision is to the benefit of consumers. On the face of it, it is disappointing that the cap on charges, which Don Cruickshank explained the need for, has been rejected.
As many noble Lords have said, we must also consider the implications for social exclusion. In banking terms, we want there to be available a basic bank account on which there are no charges for access. Of course, as a price for that, there are to be no overdraft facilities or frills. The question we have to ask ourselves is whether the availability of a basic bank account will be undermined to any significant extent by the decision taken by the Link board today.
It is appropriate for me to say what government action has been taken on banking questions, on competition and on social exclusion. We have been active in this area. First, we appointed Don Cruickshank to investigate banking efficiency and competition. We await his full report which will be produced by the end of March of this year. In advance he has given us some indication of his views on the issues which are before the House today. In advance he has approved the decisions with regard to opening up the network and with regard to transparency. He wanted to open up cash banking considerably, but I do not think that that has been achieved in the decisions.
The Government too have observed that the Office of Fair Trading, in a fairly effective press release yesterday, has indicated that it will keep a very beady eye on banking. It will do so using the powers under the Competition Act, which, as has been said, comes into effect at midnight tonight. The Act introduces two new prohibitions. One relates to agreements, whether written or not, which prevent, restrict or distort competition and which may affect trade within the United Kingdom (the Chapter I prohibition); and the other relates to conduct by undertakings which amounts to abuse of a dominant position in a market and which may affect trade within the United Kingdom (the Chapter II prohibition). It will be 544 interesting to see whether the Director General of Fair Trading thinks that those prohibitions may apply to the banking industry.
The Director General has already expressed his concerns to the Link executive, indicating that he would be concerned if charges which were out of proportion to the cost of service provision were imposed on customers, a point made by a number of noble Lords. He has indicated also that he would not want such charges to penalise disproportionately the less well off or those who have limited access to ATMs. Clearly the role of the Office of Fair Trading under the regime of the Competition Act will have considerable effects on banking competition and will complement whatever conclusions Mr Cruickshank comes to.
But the Government's actions have not been confined to Cruickshank or to the Competition Act. As I have said, we have been encouraging basic accounts with banks that already offer them. The no-frills free access account is clearly to the advantage of the least well off in our society. It would be good if it included free access to cash machines, a point made by the noble Baroness, Lady Greengross.
Reference has been made in public—although not so much today—to the benefit changes announced by the Department of Social Security. I can assure the noble Baroness, Lady Greengross, that even after these changes take place in 2003 there will not be compulsion on anybody drawing benefits or pensions to have a bank account and to draw from that bank account. There will still be the option of cash payment through post offices.
In encouraging post offices to provide a better service, we are investing no less than £500 million in the Horizon IT project for improving the computerisation of the 18,000 post offices in this country. We want them to provide quicker and more efficient services. We want them also to provide new services, which may well include new cash machines in rural towns and villages and in deprived areas in our cities which currently have inadequate banking facilities.
§ Lord Graham of Edmonton
My Lords, the Minister has touched on post offices. I asked whether he had in mind that when these services were provided in post offices a charge would be made.
§ Lord McIntosh of Haringey
My Lords, I was just coming to that point. That decision, of course, will be for the Post Office and not for the Government. Certainly the Post Office will take into account the freedom which will exist for it either to charge or not to charge. I am sure that it will be influenced by my noble friend's views.
The Post Office is under investigation at the moment by the Cabinet Office Performance and Innovation Unit. The study, which is being carried out at the moment—and which will be reported to the Prime Minister by the end of March of this year—will assess the social value of the counters network; it will research new business opportunities for the Post Office 545 within the government and private sectors; it will consider how the Post Office can best contribute to the Government's objectives in future; and it will assess the case for providing further support for post offices in rural and socially excluded urban areas which have high social value but may not be viable commercially. When that report is issued we shall be closer to an answer to my noble friend's Question.
546 This has been a most valuable debate. It has given me an opportunity to express on behalf of the Government our concern both for proper competition between banks to the benefit of consumers and for the issue of social exclusion, a matter dealt with most powerfully by a number of noble Lords in this interesting debate.
§ House adjourned at fourteen minutes before nine o'clock.