In an obscure corner of the Government website is a strange little document.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/386953/141211_basic_accounts_agreement_text.pdf

It has no links back to any other part of the Government site.  It is on plain paper and has no signatories or ownership, yet refers to “we”.  Yet there is no author nor any apparent authority or legitimacy.  It is not dated and is drafted amateurishly.

To any neutral observer it looks like a spoof.

But on 16th December the BBC led their business reporting with a report that the main banks had agreed to make basic bank accounts “free”, based on this orphaned little document and encouraged by (Economic Secretary to the Treasury) Andrea Leadsom’s interview on the BBC’s influential Today programme.  The government believes it is a “major agreement” but admits “not all banks will apply the criteria in full”. 

Since then there has been silence.  Not a word from anyone.  No bank has come forward to say they actually did agree this.  There is no list of banks that are supposed to be party to the agreement though some were name checked in the interview. Even the British Banking Association (BBA), which one suspects was the author of the document, has reduced its coverage of the accord to a single slightly apologetic paragraph which seems to point the finger at the BBC.  The quote accredited to the BBA’s CEO Anthony Browne talks in general terms about the basic account product that the banks have offered for years.

So what is going on?  At a macro level there is a genuine government concern over financial exclusion caused by the high underlying cost of providing a banking service in the UK and access to such accounts. (The document claims that access to basic accounts will be open to all, but the old, financially exclusive criteria will still be enforced.  Go figure.)

Also there is a major beef from the politicians with the banks about their stranglehold on the market and lack of natural competition.  As a result the banks are facing yet another threat from a Competition and Markets Authority review which has targeted so-called “free” banking in order to get clear and transparent pricing.  Then there is the quite aggressive EU Payment Accounts Directive of 2016 which is going to make the banks have to re-think their models in coming years.  All of this will significantly enable competition on a level playing field.

Against this backcloth, the banks are already losing money in spades on these basic current accounts.  These accounts are used by people with average to low income and whose relative lack of money in their accounts does not support the normal “interest-based” revenue model for the banks. Under this agreement, the banks would lose even more money on these customers.  No wonder they have not rolled out their marketing machines to let the customers know what is coming.  Turkeys never vote for Christmas.

Meantime light forensic examination of the  Agreement document reveals that it is not quite as it was cracked up to be.  It is certainly not binding, and it is not even an agreement.  It is an agreement that the Banks “are keen” to make changes to their already existing basic bank accounts “from 12 months after making the commitments”. These accounts are not new, and one supposes they will still not be not free.

Yes, there is a very welcome intention to drop the extreme penalty charges. But the mitigation is that future charges will be “on the same terms as other Personal Current Accounts”.  One suspects that this is the major quid pro quo.  “Free” banking is a political hot potato.  There is a path here to making the pricing on all accounts much more transparent, getting rid of “free” and aligning the basic account within this regime.  In this way some better profitability can be achieved.  So, far from lowering the prices of banking, it may well be that consumers will feel their costs have risen, and this will filter down to the basic accounts. This may have been the negotiation that was really going on between whoever these parties might have been.

It looks like the Government is asking all the right questions but may in part be reaching the wrong answers.  It wants to strong arm the banks into more transparent pricing and lower charges for the less affluent, and has run up against the problem of seeming to make the banks  start charging for something most people believe to be free.  The compromise is an unofficial, non-binding, loosely worded agreement of vague intentions signed by no-one in particular.  The hope may be that the election, the uncertainty over the EU membership and “events” over 2015 will allow this strange episode to be buried quietly in the great government website cemetery in the cloud.