Post Office 'social bank' would offer accounts to all

The Post Office is talking to the leading high street banks about plans to launch a new "social bank" that will help to offset the recent concern over the impact of bank branch closures on rural areas and the deprived inner cities.

The new stand-alone bank will mainly serve the 2 million adults who do not currently have a bank account. It will offer basic banking facilities such as cheque cashing, direct debits and depositing or withdrawing money either at counters or through a network of cash machines.

But customers will not be given cheque books or allowed to go overdrawn.

The idea is being sold to the high street banks as a way of satisfying government demands for them to do more to tackle the plight of people who do not have accounts.

However, the initiative is motivated as much by a desire by the Post Office to find new sources of revenue to plug a £400m hole, which will be left when the Government moves to paying social security benefits electronically.

Supporters of the project hope it could be approved by the Government by late summer with a view to starting pilot operations early next year.

The Post Office estimates the new venture, which would be partly funded by commercial banks, will generate about £200m of revenues within five years of being launched. Other initiatives to raise revenue are being looked at to compensate for the scrapping of benefit payments by giro. That change could cause many rural sub-post offices to close, a particular concern among MPs in rural constituencies.

Brian Larkins, the Post Office's managing director of network banking, said the new project could eventually handle one in five banking transactions in Britain.

The Post Office has 19,500 outlets throughout Britain - substantially more than all of the high street bank branches combined.

It already allows customers of a number of banks to cash cheques at its counters. In addition to Alliance & Leicester, the building society turned bank that took over the Post Office Girobank, the Post Office has recently signed agreements with Lloyds TSB and Barclays, allowing customers affected by rural branch closures to use Post Offices.

The Post Office hopes that other banks may be willing to foot the bill for the new venture rather than shoulder the burden of providing services to poorer customers at a time when many are deliberately trying to get rid of less-profitable customers to concentrate on the wealthy few, to whom they can offer a wider range of lucrative products.

The Post Office has also linked up with the Co-op Bank in a similar arrangement.

Initial expectations are that both Barclays and Lloyds TSB could back the Post Office venture, but other banks, such as the Halifax, the Bank of Scotland and the Royal Bank of Scotland, have their own plans for tackling social exclusion with specially tailored bank accounts for the poor and are likely to want to continue these independently.

Melanie Johnson, a Treasury minister, has been trying to secure a better deal from banks for deprived urban areas.

She endorsed the report last year of a task force on social exclusion headed by Fred Goodwin, the deputy chief executive of the Royal Bank of Scotland, which argued for more backing for credit unions, self-help banks for the unemployed and low paid and recommended that banks set up similar basic bank accounts themselves.