Banks Bow To Osborne Call For Basic Account

Some of Britain's biggest banks have bowed to a demand from George Osborne to provide a new no-frills account despite their complaints that doing so will lose them tens of millions of pounds annually.

Sky News has learnt that the major high street lenders have agreed to the broad outline of a new basic bank account to be launched in accordance with a European Union directive by the end of 2016.

Treasury officials have been in talks with the banks for several months about the initiative, which they want to be more generous to consumers than the EU law dictates is mandatory.

The Chancellor could announce details of the basic account in Wednesday's Autumn Statement, although it remained unclear on Tuesday night whether it would be included in his final set-piece announcement before next year's General Election.

Sky News revealed last week that talks between the Government and the banks had been beset by disagreements about the structure of the new accounts, as well as the level of fees that could be imposed on those using them.

The banks want the account to be restricted to benefit claimants amid concerns that a much larger number of consumers could argue that they should be able to move their accounts away from much more lucrative products.

Most of the lenders involved in the discussions, which include Barclays (LSE: BARC.L - news) , HSBC, Lloyds Banking Group and Santander UK (LSE: 44RS.L - news) , have now agreed to the terms proposed by the Treasury.

There remained some sticking points in recent days, including a guarantee from the Government that individual banks would not be forced to service more of the basic accounts than their broader current account market share implied.

The EU Directive said that the account could only charge fees described as "fair", but the Treasury is understood to have persuaded bank executives to commit to levying no fees or charges.

They have also agreed that the new account will offer a debit card, access to the ATM network and the ability to withdraw cash in branches.

Some bankers warn that the structure agreed with the Treasury will cost the industry at least £200m a year and that the losses will ultimately be subsidised by consumers elsewhere in the banking system.

Some of the banks also want to be able to transfer basic account customers to fee-charging products if their financial circumstances improve, an idea the Treasury is understood to be lukewarm about.

A further concern raised during talks with the Treasury is that the new account may attract demand from large numbers of consumers who are not benefit claimants, which has prompted the banks to urge the imposition of strict eligibility criteria.

The Government estimates that up to 7m people will participate in the Universal Credit welfare programme by 2019, with the new basic account expected to be restricted to that population.

The British Bankers' Association (BBA) has been leading the negotiations with the Treasury about the broad framework of the plans, but for competition reasons, discussions about pricing and fees have been held by the banks on a bilateral basis.

The big banks have offered basic accounts, which do not have overdraft facilities, for several years, with the BBA saying in 2012 that more than 9m of them were open.

However, the terms and structure of the accounts vary between lenders, with some having a higher customer age limit and others including restrictions on how funds can be withdrawn.

Some also impose charges for returned item fees or unpaid transaction fees, when payments are declined owing to insufficient funds.

Estimates suggest that more than 1m adults in the UK do not have bank accounts, often because of a poor credit score.

The Chancellor is also expected to announce in the Autumn Statement plans to bolster the current account switching service, as Sky News revealed last week.

The Treasury and the BBA declined to comment.