§ Mr. Colin Breed (South-East Cornwall)
Even after decades of cheques and years of credit cards, debit cards and cheque cards, and now even internet settlements, more than 85 per cent. of financial transactions are conducted in cash. Access to real cash—notes and coins—remains essential to our everyday life. Those who live in towns and cities have a variety of ways of obtaining cash; they can go to their banks or building society offices, to post offices, to automatic cash machines and even to supermarkets, which are now willing to provide cash.
It must be acknowledged, however, that access to such financial services in rural areas has become progressively difficult. The general trend of declining rural services and the predominance of commuters and holiday-home owners in many rural areas have devastated the local customer base that is vital to sustain banks and post offices. For instance, in Common Moor in my constituency, the post office closed a year or so ago, and pensioners are now forced once a week to await the arrival of a mobile post office—sometimes in the wind and rain. We wonder how long even that will continue.
I shall highlight the problems experienced by many people in rural areas when attempting to gain access to all sorts of financial services, particularly cash. This is a pertinent time to discuss the matter, as the Government are proposing to alter the way in which benefits are paid. They want to use the automatic credit transfer system to transfer money to bank accounts rather than using the more traditional post office counter transactions. However, many bank branches in towns and rural areas are closing, partly due to mergers but mainly because they are now considered inviable.
Hon. Members are well aware of the problems, and the Government have given us assurances, but the Post Office estimates that nearly half the sub-post offices gain 40 per cent. or more of their custom through making benefit payments. Many sub-postmasters and sub-postmistresses are naturally extremely worried that they will be unable to continue in business if they can no longer pay benefits. If the Government go ahead with their proposals, those people will surely see their businesses close. Historically, post offices have been at the heart of rural communities. We must seriously consider the complete picture before we put them under threat, especially because they provide benefits to some of the poorest people.
The Government assure us that they are committed to maintaining a national network of post offices. They say that they intend to negotiate with the banks to allow people to gain access to bank accounts over the post office counter. I assume that nothing has so far been agreed, yet the Government seem committed to going ahead with the proposal. How does the Economic Secretary to the Treasury expect such a system to work? When will post offices find out whether they will be supported? That is particularly important to those who, even now, are contemplating selling up and retiring; they are unlikely to find many buyers until that matter is clearly settled.
90WH If we can take more business to rural post offices, perhaps allowing them to provide banking services to their communities, so much the better; but what are those services, and how financially beneficial are they likely to be? People in rural communities who so desperately need their post offices do not want sophisticated access to largely irrelevant financial services; they want payment of their benefits in cash. The people of Common Moor would be little impressed by a row of automatic telling machines miles away if they could not be paid their pensions when they needed them.
Access to banks is a great problem to many people in rural areas, and I applaud the efforts of some banks, including the Bank of Scotland, which have tried hard to improve accessibility. They have set up community-based banking schemes, installed ATMs in public areas and made bank officials available on certain days to dispense advice. Those schemes are good, but others, such as the Horizon project, have already cost a considerable sum and need further development. Nevertheless, such projects are essential to providing rural communities with better banking facilities.
Those who have a reasonable income and who maintain a healthy bank balance are usually able to look after themselves if banking services are provided. However, the Government-formed policy action team 14 report "Access to Financial Services" reveals some interesting figures. Apparently, 1.5 million households do not use any financial service. In one household in 10, no one has a bank account. Most interestingly the majority of those with no bank account are from low-income households, often on means-tested benefits and living in social housing. Many are over retirement age.
The Government are right to be concerned that such people do not have bank accounts. Access is one barrier, but other major barriers include the banks not wishing to give people accounts and people simply not wanting to have one. Studies show that the unbanked choose not to have an account for a variety of reasons. Some are women who have chosen to let their husbands hold the account. One of the major advantages of the current system of administering child benefit is that it is paid to the mother. How can that continue if the mother does not have a bank account? Would child benefit have to be paid to the husband or partner? The Government may jeopardise the right to choose. Furthermore, many poorer people have to watch every penny and budget in cash, not by bank statement. Many do not have a bank account, either because they do not trust themselves to stay out of debt or because the banks do not provide adequate local services. What can the banks offer them?
Even if choice accounts for some, we cannot ignore the fact that at least 1 per cent. of people are without accounts because they have been refused them. How does the Economic Secretary intend to change the banks' minds? Obtaining a bank account is by no means an automatic process. It is hardly an attractive business proposition to a bank to take on a customer whose account registers £40.70 at the beginning of the week and only a few pence the next day. That proposition will become even less attractive if the account starts to register unauthorised overdrafts or becomes an economic nuisance. Can such people's requirements be met by commercial banks? Banks are private companies, and surely cannot be forced to accept customers.
91WH "Access to Financial Services" notes some key principles. One is non-compulsion. The report states:
People who do not want bank accounts should not be compelled to have them; and banks' selection of which sections of the market to serve should be left to their commercial judgement.With that principle in mind, how will the Government achieve the sort of accessibility to benefits payments that is necessary to reach the most disadvantaged parts of rural communities? The Government have promised to talk with the banks, but do they expect to have widened bank account holding and improved access to banking facilities sufficiently by 2005, when the automatic credit transfer scheme should be fully in place? If not, what do they propose?
A further problem with increasing reliance on automatic bank services is that, as proper, manned bank branches continually close, access to other financial services will become much more difficult. An ATM may be able to do a great deal for an account holder in the day-to-day running of a bank account, but it cannot advise on mortgages or home insurance. The policy action team suggests that credit unions might be a way forward. However, even community credit unions may not be viable in sparsely populated rural areas. They are voluntary groups, at present in an embryonic state, and to function properly they require critical mass. That, too, is difficult to achieve in sparsely populated areas.
It seems clear to me that, in their headlong rush to reduce the social security costs of distribution, the Government have failed to consider the wider implications of their decision. Do they seriously expect the banks not to increase their charges when they enjoy a monopoly? Do they think that the possibility of new account holders is likely to stem the closure of rural bank branches? Do they not realise that the bank branches of those vulnerable people who rely on weekly benefits will close, probably because they are not viable, followed shortly by their post offices and perhaps the village shop? What will be the cost of access then—a bus ride into town, perhaps a charge to use a cash machine and greater inconvenience? A few pounds on a social security budget will be saved, but that saving may prove to be only temporary. Transferring the costs of distributing benefit from the Government to those who receive it is simply unacceptable.
Surely it is crystal clear that post offices should become the providers of financial services and continue to pay benefits; it is the banks that are likely to close. The rise of telephone banking services and the installation of automatic cash machines have dramatically reduced bank customers' need to go into their branches. Many of us might not have been inside our bank branch for many weeks or even months. Banks want to pull out of many places, and they will ultimately do so, but post offices want to stay in them. Post offices have a loyal customer base and can provide the low-level cash services that people need daily.
If the Government had any sense, they would use the commercial freedom of post offices and allow them to take over such bank functions. Post offices would start to generate alternative income from providing the banking services that the banks are regularly ceasing to provide. That might ultimately secure a reduced benefit bill to the Department of Social Security. If post offices had a wider range of income, and if they could maintain village stores and provide other services, their reliance 92WH on the income derived from benefit payments would be reduced. Vital rural post office stores would be maintained and banks could withdraw a little sooner, while providing their customers with an alternative. Surely that is the sensible way forward.
§ The Economic Secretary to the Treasury (Miss Melanie Johnson)
I am delighted to be able to respond to this debate. I understand that the hon. Member for South-East Cornwall (Mr. Breed) used to be a bank manager, so he speaks with considerable authority. I am somewhat distressed to hear that he may not have been inside a bank for some time. That may be part of the problem that the banks face.
As the hon. Gentleman said, better access to financial services is a vital element of rural development and is essential in achieving the Government's wider aims of eliminating social exclusion, which will remain at the top of the Government's agenda. Many people are not able to share the growing prosperity and all the life chances available in our society. Many of them live in deprived urban neighbourhoods, although we know that the problem of access to financial services affects rural as well as urban areas, and not only the poor.
Following the social exclusion unit report on deprived neighbourhoods, "Bringing Britain Together", which was published in 1998, the Treasury established policy action team 14—whose report the hon. Gentleman has referred to—to consider financial services. That report makes it clear that many of the problems of access to financial services are generic, but that they can be solved.
The way forward lies in developing new and alternative means of providing access to financial services, as well as ensuring that existing services can reach all rural and urban communities. The policy action team's report contains more than 40 recommendations, some of which I shall outline. The sheer number of recommendations shows that the problem has no single solution. "One size fits all" cannot be the right approach to the design of products or service outlets, because people's circumstances and preferences vary. Diversity and choice are the watchwords. The banks in particular have a major task ahead of them in extending services to low-income households and developing delivery channels that are accessible to people in areas away from major commercial centres or individual branches.
The Government's full response to the recommendations of all 18 policy action teams will be announced next year as part of the national strategy for neighbourhood renewal. However, I shall highlight the recommendations on this matter on which we are making progress.
First, as the hon. Gentleman said, we want to encourage the growth of credit unions, which are much less well developed in Britain then in other countries. Indeed, they are less developed in rural areas than in urban ones.
§ Miss Johnson
I am sure that that is a matter for the credit unions themselves, and that they will hear what the hon. Gentleman says.
One of the report's recommendations is the establishment of a new central services organisation to assist the growth of the credit union movement. That organisation will support new and existing credit unions and produce a bigger, stronger credit union movement, which will be assisted by the new supervisory framework and deregulation measures that were announced in November.
Ways will be found to improve the coverage of insurance with rent schemes. We shall work with the industry to develop challenging targets. We want to improve access to affordable credit—perhaps through the Department of Social Security social fund—as well as promoting wider access to debt counselling and refinancing for those who have problems. All those developments could benefit people in rural areas as much as those in towns and cities.
I shall now specifically deal with banking. We have heard about the difficulties faced by people in rural communities that have no bank branches nearby and the issues facing the Post Office. The banks can do much to remove unnecessary barriers, develop the right products, open new delivery channels and provide their customers with better information.
More informed and educated consumers will make better choices about financial services. That is why we have made promoting consumer awareness a statutory objective of the Financial Services Authority under the Financial Services and Markets Bill. Alternatives to conventional bank branches have existed for some time in this country. There is a huge and increasing range of alternatives, such as telephone, Internet, supermarket or post office banking, cash machines away from bank branches and banking via digital television.
The Post Office is particularly important in rural areas. In many communities, it is the only retail business and a focal point of village life. The Post Office has 19,000 branches—about 10 times as many as the largest high street bank. The development of banking at the post office is already providing benefits to untold numbers of people in rural communities and has the potential to serve many more in future. Customers of several banks now have the opportunity to carry out bank branch business—transactions that cannot be done over the telephone, such as paying in a cheque or drawing out cash—at the post office. Other banks and building societies could enter into similar partnerships. The decision to computerise the Post Office network, announced at the end of May by my right hon. Friend the Secretary of State for Trade and Industry, will enable the Post Office to provide an even broader range of services.
I shall now deal in more detail with some of the questions that the hon. Gentleman raised. It is important to point out that ACT will not be compulsory. I was not sure whether he was implying 94WH that it would be, but there is no Government proposal for anything other than a voluntary extension of existing arrangements through computerisation. That will enable people who want ACT to be paid benefits and pensions through a more modern, secure method, which I am sure the hon. Gentleman would agree can be only an advantage to the customer and to the Post Office. The Post Office will continue to pay benefits in cash.
There is a danger that the possible solution is construed—the hon. Gentleman in danger of so construing it—as the problem. We can extend access to banking. The hon. Gentleman referred to the problems of access to banking in rural areas, but the Post Office is part of the solution to that—via a closer relationship between Post Office Counters Ltd. and the banks and building societies, which will build on work being done in that regard. The upshot will be a better service to consumers and to those receiving benefit payments, while cash will still be available. We will ensure that the Post Office develops in a way that leaves it at the heart of rural communities.
On the hon. Gentleman's question about the future of the Post Office network, we said in our White Paper that we would publish access criteria, which the new regulator will have a duty to monitor, that aim to ensure that everyone in the UK has reasonable access to Post Office counter services. That is an appropriate method of dealing with the issue. In addition, the Prime Minister, who has taken a keen interest in the matter, has asked the performance and innovation unit to carry out an urgent study on the Post Office network. That will aim to identify the contribution made by post offices to the wider vitality of our rural and urban communities, consider how the Post Office network can best contribute to the Government's objectives for the future and, in the process, formulate objectives for the future of the network. Much work is therefore in hand and many answers lie in the changes that we face. The new technology can be a means of solving rather than creating problems. We believe that a better service will emerge out of all of this. As the hon. Gentleman said, it is important to look at the complete picture.
On the banks, which was another issue that the hon. Gentleman raised, we are, as he knows, looking at the development of basic accounts by all the main banks. We wish them all to offer basic accounts to all their customers and to ensure that the forms of identity demanded for opening accounts are appropriate and sensitive, so that passports or driving licences are not required if people do not have them. Because of anti-moneylaundering requirements, the banks much check people who are applying for accounts. The hon. Gentleman referred to the fact that some people who do not have bank accounts may not want them.
§ Miss Johnson
The banks have worked closely together, through the British Bankers Association, in drawing up a leaflet of advice about the forms of identity that banks will and can accept that do not in any way conflict with anti-moneylaundering legislation to which we are committed and are keen to see operating. That 95WH will enable people to open accounts with lesser forms of identity. The banks are making every effort to ensure that staff at branch level are aware of and operate those lesser requirements. If there has been a problem in the past, it may have been partly a question of identity documentation, to which we and the BBA have sought to find a solution.
It is also open to local authorities to make arrangements with banks to have cash machines on public premises, visits by mobile bank vehicles or premises for part-time use by service providers. There is considerable scope for initiative and for banks to come up with creative responses. The hon. Gentleman asked how we might change the minds of the banks. The banks are, as they are very well aware, under considerable public pressure on a number of fronts. We do not want to have to legislate, as some have urged, to compel the banks, or financial services, to serve all sections of the community, but if voluntary action and partnership do not lead to the kind of changes and development of options that we think necessary, we may, as we have said, have to consider other options.
Our policies on access to financial services will help people in rural areas as well as tackling the wider questions of financial exclusion in a number of our communities, but there are many other ways in which the Government's policies for rural areas are already making a difference. If I mention a few of them, it will help provide a more complete picture.
The Countryside Agency, which was created in April 1999, provides for an integrated approach to rural issues. We have set up a new Cabinet Committee to coordinate policies affecting rural areas, which will help to achieve a fully cross-departmental policy for the countryside. We have also provided an additional £1 million for the Countryside Agency to focus on rural needs, allowing it to do more to help mainstream programmes reflect such needs.
We have also provided for increased public expenditure on rural programmes, from £128 million last year to £146 million in 1999–2000 and £162 million in 2000–01, with a projected £174 million for the following year. We have introduced rate relief for village shops and post offices so that the sole shop or post office in a settlement of fewer than 3,000 people is eligible for 50 per cent. rate relief. We have provided an additional £170 million over three years for rural transport, including new support for rural bus services and encouragement for community transport initiatives.
The combined effect of that funding and of the other measures that I have mentioned is to promote the prosperity and enhance the life of our rural communities. We know that they play an important role and we need to look after those who live in them and meet their needs. We are confident that better access to financial services will be a part of that process.
§ Madam Deputy Speaker (Mrs. Gwyneth Dunwoody)
Order. Since the Minister is present, we can go on to the next debate.