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Banks: Cheques

Volume 728: debated on Monday 6 June 2011


Asked By

To ask Her Majesty’s Government what is their response to the proposed withdrawal of cheques by the banks.

My Lords, the Payments Council has made a clear statement that cheque facilities will continue to be available until the alternatives that are put in place, including a paper-based system, are available, acceptable and widely adopted. Many users continue to rely on cheques, particularly small businesses, charities and the elderly. The Government believe that cheques should not be phased out unless suitable alternatives are in place for all users.

Is my noble friend aware that the Payments Council is little more than a bankers’ quango? Is it not extraordinary that this proposal takes no account of the Federation of Small Businesses, which has 200,000-plus members, who are totally against such a change? It takes no account of the hundreds of thousands of clubs, and their treasurers, up and down the country—I declare an interest as treasurer of the Lords and Commons Tennis Club. Furthermore, there are certain technical issues in the City, where those who fail to take up a rights issue have to be presented with a cheque and where, for takeover bids that fail, there has to be a cheque drawn. There are myriads of activities that require cheques, affecting tens of millions of people. Is it not time that the bankers for once thought about the public? Should not the Government consider putting further pressure on the Payments Council to make sure that cheques remain a normal method of doing business in this country?

My Lords, it is correct that the Payments Council is an industry body. It is the banks and the other industry players who pay for and maintain the payments system, but it is a body with a chairman and four other independent members, and the Bank of England is an observer on the board. Back in December 2009, the Government welcomed the commitment made by the Payments Council, which was clear that if it took a decision in 2016 to end the present system of cheque clearing in October 2018—and it will take that decision only in 2016 if it does so at all—it will do so only if there is an available, acceptable and widely adopted alternative system. The Government have been clear that that must include a paper-based system. We believe that it is appropriate to continue to work closely, as we do, with the Payments Council to make sure that it is held to the commitments that it has given. The council is consulting users widely and has another round of consultation running now, and it will I am sure continue to take note of the important views of all users of cheques.

Is the Minister saying that the alternative would have to be a paper-based system? If so, why on earth is the Payments Council bothering? Is this not an example of a body to which responsibility has been handed over without any control or thought? How much is it all going to cost? Why do they not just abandon it now and be done with it?

My Lords, the facts of the situation are that the number of cheques being used has declined dramatically in recent years. There were approximately 4 billion cheques in use in 1990 and by 2009 that had reduced to approximately 1 billion—and it is expected to reduce very significantly again over the next few years. The fact is that the system has declined in use and it will require a very expensive rewrite of the clearing systems if it is to continue in its present form. The last thing that the Government or users of cheques would want to see is charges being passed on to users of cheques if that was a result of banks having to put in place an expensive new system. So one has to be pragmatic about this and give them the time, which they are taking, to come up with an alternative, including a paper-based alternative, that is acceptable to small businesses, charities and other individuals.

My Lords, I am sure the whole House will have welcomed the Answer that the Minister gave to my noble friend’s initial Question, but will he go a little bit further? Will he undertake to use the power of the Government’s holdings in a number of banks—and the way that those banks are privatised, as I hope they will be—to encourage competition in retail banking in this country and, as part of that competition, to try to encourage at least one of the new entrants to continue to provide a checking service?

My Lords, I am happy to confirm to my noble friend that competition is key to so much of making our banking system work better than it has in some respects in the recent past. That is precisely why the Independent Commission on Banking was given competition as the heart of its remit. Whether in relation to alternative payment mechanisms or to so many other things in banking, I completely agree that competition has to be at the heart of it. Again, when it comes to the Government’s shareholdings in the banks, the independent commission has made some provisional findings which very much touch on the banks that the Government control.

My Lords, does the Minister agree that our forebears might regard the capacity to extract Treasury notes from a hole in the wall as the greatest miracle since Moses struck the rock? Will he undertake, however, that if this matter is raised seriously again by the banks there should be a wholesale study into the question of third-party rights in relation to bills of exchange, choses in action and garnishee orders?

My Lords, we are straying a bit from the rather important and focused question of cheques and the Payments Council, which those other forms of payment extend rather beyond. The critical thing is that no decisions are to be taken precipitately. As I have said a couple of times, the banks recognise what they have to do. This issue will remain a matter of considerable public focus, not least because the Treasury Committee in another place recently announced that it is reopening its own inquiry into the future of cheques. The issue will remain very much in the public eye and the pressure will be on the banks and the Payments Council to come up with a solution that works for the whole country.

My Lords, the Minister said just now that it was the Government’s view that cheques should not be phased out until suitable new arrangements have been made. Can he tell us what criteria the Government will use to judge the suitability of any arrangements? If those criteria are not met, will the Government require that cheque payments be maintained?

To those noble Lords who were listening to some of my previous answers, forgive me for repeating myself: the criteria which the Payments Council itself put forward and which the previous Government welcomed back in December 2009—I echo that welcome—were that the new system had to be generally available, generally acceptable to its users and widely adopted. There also has to be, in the view of the Government, a paper-based system. Those are the criteria that have been set and we are making sure that the Payments Council sticks to them.

My Lords, as the Minister will know, Germany has already withdrawn cheques from general use. I called German relatives to ask how they deal with payments that they either do not wish to make online or cannot make online, and the answer was to keep a lot of cash at home and in your pocket. Given the vulnerability of people and our whole desire to move away from cash being in the home or on people who are frail and potentially at risk, will he make sure that the Payments Council understands that this is not one of the answers?

I am grateful to my noble friend for drawing attention to that issue, which is one of the important issues that the Payments Council must take into account. I am sure that it will be listening carefully to what is being said today. If anyone wants to go on to the Payments Council website, there is probably a paper-based system for submitting suggestions to it on all these matters.