Barclays breaks ranks to back Post Office's Universal Bank

A split has opened up between the high street banks over their opposition to Government demands that they fund the £130m cost of launching the new Post Office Universal Bank, which is aimed at the 3.5 million Britons without a bank account.

A split has opened up between the high street banks over their opposition to Government demands that they fund the £130m cost of launching the new Post Office Universal Bank, which is aimed at the 3.5 million Britons without a bank account.

Barclays, which is keen to rehabilitate itself in the wake of the highly public row over branch closures earlier this year, is said to be ready to break ranks and back the scheme.

However, the Government plans are still being vigorously opposed by Royal Bank of Scotland, HSBC and Lloyds TSB. They maintain that the so-called basic bank account, which some banks have been operating for some time, is a more effective way of targeting the financially excluded.

RBS's opposition carries all the more weight as Fred Goodwin, RBS's chief executive, headed the Government's task force on financial exclusion. Since its takeover by RBS, NatWest has launched its own version of the basic bank account which allows low-income customers access to cash machines and direct debit facilities but without a cheque book facility or ability to go overdrawn.

Barclays said yesterday: "To say we are enthusiastic is too strong - but we think there is some merit in the idea. We do have some concerns, but we believe they will be sorted out with the Post Office."

Today Barclays launched its own basic bank account, in partnership with Salford Money Line. The account is available to all over-18-year-olds, and offers basic banking facilities but pays no interest.

One banker said yesterday: "We are not sure that the low-income groups the Government is targeting are going to want the stigma which will inevitably be attached to joining the Universal Bank at the Post Office, rather than getting a bank account from a high street."

He pointed out that the high street banks would be able to upgrade customers to more conventional accounts with credit facilities once they had established a track record - an option which would not be available through the Post Office bank.

Officials from the banks, Post Office and the Department of Trade and Industry are due to meet within the next few weeks in an attempt to thrash out a compromise.

As well as the £130m start-up costs, the Post Office estimates the on-going cost of running the Universal Bank will be £300m a year.

Privately most banks are irritated at what they see as Government attempts to bully them into supporting a scheme which, in their view, has more to do with finding an alternative source of revenue for post offices after the Department of Social Security switches payment of benefits over post office counters to an electronic system in 2003. They are also annoyed that utility companies, which are set to gain from the move, are not being asked to stump up.

However, they also believe that they will ultimately have to agree to support the scheme rather than risk further confrontation with the Government at a time when they are in the middle of a Competition inquiry and further legislation is the pipeline to open up the core bank payments system.

Several of the banks have entered into bilateral arrangements with the Post Office enabling their own customers to have access to limited banking facilities through Post Offices. A number have been seeking to extend that to small business banking but have run into opposition from Alliance & Leicester which owns the Girobank and which has designs of its own on the small business market.