Post Office banking could prove costly

TAKE 11 banks, two Government departments, a quasi-nationalised entity and a mission to save money and what do you get? Railtrack is not the answer. This time, it is the Universal Bank, the Government's inspired idea for safeguarding the Post Office and delivering electronic payment of benefits at the same time.

The project surfaced 18 months ago when it was intended that Britain's biggest lenders would subsidise a single bank account to be made available to benefit claimants at post offices nationwide.

Much has changed since then. Treasury officials realised offering Post Office bank accounts to every benefit claimant could cost a fortune. A new idea was conceived, whereby Post Office Counters would offer claimants a choice of either a Post Office account or a bank-branded basic one. The banks agreed and said they would provide £180m to subsidise the Post Office account, currently named Clear.

But there has been much wrangling over how many people will opt for Clear and how many will go for a branded bank account. A simple bank account costs around £55 a year to run and Clear would probably cost a little less. The Treasury is keen to encourage claimants to go for a 'proper' bank account since these would cost the Government nothing. It would be happy with two million Clear users. The Post Office and the Department for Work and Pensions, backed by research, believe the number could be nearer six million. Even if a Clear account costs just £40 a year to run, that still means the difference between £80m and £240m.

It is hoped agreement can be reached by the end of next month but a fresh debate has begun over how quickly new accounts will be taken up. Claimants will have between April 2003 and 2005 to switch to electronic payment and there is no way of knowing if they will move swiftly or slowly. The Post Office believes it has to have systems in place for a speedy transition, which will almost certainly mean initial overprovision of services - paid for by Government, naturally.

There is also the matter of signing contracts with the original lenders, who have so far only put their names to a memorandum of understanding. That took several months and a contract is more binding.

The Post Office is optimistic about universal banking and the Government would be deeply humiliated if it came to nothing. But striking a deal between the various factions will not be easy. The end result is bound to cost more and save less than the Government intended.

Credit watch

LATEST figures on mortgage lending provide a clear indication that the property boom is coming to an end. Demand for new mortgages fell sharply compared with last year and Britain's leading banks believe we are entering a new era. Their figures do not suggest house prices are about to slump. Rather, that the extravagant price rises we have become used to will be replaced by a more pedestrian rate of growth.

The banks' data on credit card borrowing and personal loans reveals that consumers continued to spend enthusiastically last month. But the spending was not quite as rampant as in previous months.

The British Bankers' Association believes the mortgage and consumer credit data paint a picture of an economy that is holding up well. Its figures relate to September, however, and there has been a spate of bad corporate news since then. BBA figures for this month and next will be closely watched.

Marking time

LUC Vandevelde has been chairman of Marks & Spencer since March 2000 and became chief executive as well six months later. When Roger Holmes joined the group last January as head of UK retail, it was said he would become chief executive once there was real evidence of recovery.

Last month, M&S indicated it was turning the corner, with the first quarterly sales increase in three years. One swallow does not make a summer, however, and three months of good sales do not constitute recovery. Further evidence of progress should come with interim figures on 6 November but Christmas will really show if the Holmes medicine is working.

Even if M&S delivers a sparkling performance, it is unlikely to satisfy Vandevelde and the rest of the board that Holmes should be promoted. The group has been so badly burned in its recent past that it is intensely cautious of repeating the mistakes. The thinking is that Holmes will have to wait until the M&S year-end next spring before the powers-that-be decide if he has earned his spurs.

By then, Vandevelde will have been chairman and chief executive for 18 months. High time to give up one of those jobs.