Universal Bank scheme 'likely to meet resistance from low earners'

The banks involved in the project to create a Universal Bank believe the Government has grossly underestimated the difficulties in selling the plan to the seven million low-earning people it is aimed at.

The banks and other parties involved in the scheme are increasingly concerned, as the first letters explaining the Universal Bank are set to go out within the next two weeks.

The letters will tell recipients of state benefits that, from April 2003, they will no longer be able to take a benefits book to a Post Office counter. Instead, the money will be paid electronically, so they will have to have a bank account.

The move is part of the Government's drive to cut the cost of administering state benefits. It is intended to help combat financial exclusion, by encouraging the seven million adults in the UK without a bank account to open one.

The Universal Bank was also dreamed up as a way to compensate the Post Office for the revenue it will lose once benefits are paid electronically. Recipients will still be able to use one of its 17,500 branches to collect their benefit from the new Universal Bank, which will take the form of a new basic bank account run by the Post Office or the high street banks.

Development of the Universal Bank has been shaky because of foot-dragging by the banks and infighting among Government departments. The fresh concerns among bankers are that the Government has failed to appreciate how tricky it will be to persuade people to open bank accounts.

They also say the Government has failed to address the fact that people will need advice about whether to opt for an account with the Post Office or a bank. One senior banker said: "The banks' basic accounts allow people to pay their bills by direct debit, but some will fine people £30 if they do not have enough money in their account to pay. To the types of people using this account it would be disastrous."

David Mills, the chief executive of the Post Office, maintains that people would be able to receive guidance. But he conceded the Post Office would have to take "politically sensitive" decisions, because the Department of Work and Pensions wants to keep the Post Office accounts to a minimum as the Government is paying to administer them.