A universal bank account

Not everyone can open a bank account. A bank will only offer you an account if they think they will make money out of it, and they do that when you have an overdraft on which they can charge interest or a substantial balance which they can lend on. Poor people with poor credit histories aren’t allowed overdrafts and don’t have large balances.

Not having a bank account is one of many ways that being poor can cost you money. It also costs everyone who does business with you money, and that includes the government.

Almost everyone, however, does have at least one account with the government. It’s not a bank account, but it could be.

This would involve consolidating any amounts due between the individual and the government, allowing individuals to pay directly into it through transfers, teller machines, or Post Office counters. It would let you take cash out and allow on-line purchases and electronic banking. It would not, however, do anything requiring credit such as overdrafts, cheques or direct debits.

It would still allow banks plenty of room to offer something more attractive to the customers they actually want. Still, it would allow anyone, even someone with fraud convictions, to operate in the modern world.

As you might guess from the name, the system integrates particularly well with a Universal Basic Income. Government payments through a UBA would have much lower transaction costs than payment through a third party bank, let alone the DWP methods for those without bank accounts.

It also allows some extra facilities because UBI carries a gold-plated government-backed guaranteed income until you die (I would advocate until a year after you die). This means you can guarantee a minimum balance at any time in the future, which means you can set up guaranteed transfers for future dates. It’s an alternative to credit for the uncreditworthy.

Since UBI requires all income to be taxed, it might also be worth adding the facility to accept inward transfers marked as taxable and deducted at source. Companies that paid their staff this way would cut out all the hassle of tax codes. Casual earnings, interest, dividends and many other investment income types could also be paid this way. It would save a lot of people the annual nightmare of tax returns, and it would also save the government money.

Assuming that some people would leave significant amounts of money in their accounts, it could reasonably be expected to break even as a banking operation. The real benefit, though, would be in substantial savings both to the government in its financial dealings with the public and to those who would otherwise not have access to a bank account.

* I am a Software Developer and Long-term Liberal Democrat based in London

Read more by or more about or .
This entry was posted in Op-eds.
Advert

26 Comments

  • Peter,

    I think you have highlighted a critical element in the efficient delivery of a Universal Basic Income. National Girobank was a British public sector financial institution run by the General Post Office until 2003. There are still post office card accounts available where benefit payments can be paid in and withdrawn from. DWP and other government departments have been implementing a conversion campaign to encourage POca customers to convert to an alternative account to receive payment of pensions, benefits and tax credits.
    With Central banks now embarking on the creation of digital currencies, it will be possible for the Bank of England to make accounts available that would allow households and businesses to directly make electronic payments using money issued by the Bank of England. The Banks press release is here: https://www.bankofengland.co.uk/research/digital-currencies

  • Joe Bourke is correct to point out the former existence of National Girobank.

    It was a successful public sector bank via the Post Office set up by Tony Benn when he was Postmaster General in the Wilson Government back in 1968. It offered most of the services that Peter Davies aspires to.

    The Thatcher Government privatised it in 1989, and as I recall, the Liberal Party made very little fuss about this even though it was a great boon in rural areas. It was sold off to the Alliance & Leicester Building Society who were in turn eventually bought out by Banco Santander.

  • The universal bank account is only one part of the modern universal service offering, we also need a universal mobile phone account, from which the universal account could be managed and online government services could be accessed (ie. most websites with an address ending in .gov.uk) for free.

  • Strange – I’ve never used my overdraft facility and opened my account with a small amount of money, no problem.

  • This is vital with the rapid disappearance of cash. Without a bank account, there is no means of transferring money electronically, a problem made more acute by Covid 19 and people nervous of handling cash. There are even places where paying to use the local swimming pool is electronic with no cashier service. How are people without bank accounts supposed to access this amenity? So yes, a universal right to banking services (underpinned by the state if necessary) and an account with at least a debit card.

  • David Evershed 25th Feb '21 - 1:58am

    Introduction (Dec 2016) to
    https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/576033/Basic_bank_account_2016_dec_final.pdf

    “Basic bank accounts have been available in the UK for over a decade, aimed at supporting financial inclusion for those without a bank account. Previous industry agreements on basic bank accounts were not prescriptive, but established that basic bank accounts should not charge the customer for everyday transactions, and should not be able to go overdrawn. ”

    In 2014 the government had an agreement with the main banks to further improve the basic bank service.

  • Tony Harris 25th Feb '21 - 7:36am

    Actually, the POST OFFICE account into which pensions are normally paid into is sort of this. If i recall, it was/is run by CITIBANK (or similar) who paid zero interest on what must have been billions of on deposit. However, it provided a cash card and you could set up standing orders and (I think) DDs although there was no overdraft facility. The stark reality is that those who are on the lowest incomes pay more for credit, gas, electric, water, etc. etc. This is a situation that definitely needs levelling up but enabling it is hard. It’s one of those ‘too difficult box’ items that successive governments have looked at and retreated from. If you want to know the true state of affairs speak to CPAG or Citizen’s Advice! It’s not pretty!

  • Peter Martin 25th Feb '21 - 11:18am

    @ Ian Sanderson,

    “I still have the same account I opened then.”

    Me too. Except, as you say, it went from National Girobank, to Alliance and Leicester and is now Santander.

    Mrs Thatcher privatised it. I think there must have been an element of spite in the way she did that because, unlike with other privatisations, and demutualisations, even long standing account holders weren’t offered any special deals when it came to buying shares. Probably she was aware that us lefties had been attracted to the idea of a state owned bank and she wasn’t for doing us any favours!

    As always the Liberals were nowhere to be seen in raising any opposition to the sale. I’d be in favour of buying it back for no more than it was sold for in the first place as a deterrent to those who wish to cash in on the cheap sale of public assets.

  • @Peter Martin – I’d be in favour of buying it back for no more than it was sold for in the first place as a deterrent to those who wish to cash in on the cheap sale of public assets.
    Not, kept up with events (ie. share ownership), but it might be cheaper, easier and more beneficial to simply increase the tax payer stakes in banks that we indulged in during 2008~2010… 🙂

  • David Evershed 25th Feb '21 - 12:34pm

    Peter Davies’ first two sentences are incorrect.

    There is a requirement on banks to provide a basic banking service free of charge.

    This is set out in paragraphs 21, 22, 23 of the regulations at
    https://www.legislation.gov.uk/uksi/2015/2038/pdfs/uksi_20152038_en.pdf

    An extract is as follows:
    “A designated credit institution must offer a payment account with basic features to any consumer who— (a)applies for a payment account with basic features on or after 18th September 2016; and (b)meets the eligibility criteria set out in regulation 23. (2)Where a designated credit institution does not offer a service referred to in regulation 19(1) to consumers holding payment accounts with it which are not payment accounts with basic features, it is not required to offer that service as part of a payment account with basic features. Eligibility criteria 23.—(1) In order to be eligible for a payment account with basic features offered by a designated credit institution (“B”), a consumer must be legally resident in the European Union, and must either— (a)not hold a payment account with any United Kingdom credit institution that has at least the features set out in regulation 19(1); or (b)be ineligible for all payment accounts offered by B that are not payment accounts with basic features.”

  • @David Evershed – It would seem that the problem is largely one of perception and public consciousness. Everyone knew about the Post Office/Girobank, most people have forgotten about the free of charge basic banking service requirement and wouldn’t think to walk into their local commercial bank and ask for that product. Also depending what exactly is “the eligibility requirement” that may also discourage people signing up.

    With the banking world seemingly champing at the bit to get back to subscription/paid for banking services, I suspect they will increasingly neglect their basic banking service and allow it to be forgotten. Hence I do see the need for a bank that primarly promotes a free of charge basic banking service available to all. Also just like Directly Operated Railways Ltd. it does mean the government knows just how much it costs the commercial banks to offer a free banking service and if allowed to operate like DOR might raise the bar on just what a basic banking service is.

  • David Evans 25th Feb '21 - 4:05pm

    David Evershed is absolutely right. All major Bank’s have a duty to provide a “Basic Bank Account” already. They were introduced under Toy Blair, but the coalition made what they had to provide a statutory requirement.

    They are all easy to find on the internet, either directly or via websites like Money Saving Expert, and available to all (except groups like fraudsters or money launderers).

    So the key question is – Why do we specifically need a state run institution?

    That’s not to say I disagree with the proposal on principle, speaking as a ex Girobank employee I know it can be made to work, but we really do need a better strapline than “to provide banking for fraudsters.”

  • William Francis 25th Feb '21 - 8:46pm

    “Since UBI requires all income to be taxed”

    Why?

  • Peter Davies 27th Feb '21 - 9:14am

    @William Francis It’s not an absolute requirement but every scheme I have seen starts by replacing personal allowance with UBI. A personal allowance is a flat amount given to everyone except the poorest. I can think of no justification for that if you have a flat amount given to everyone including the poor.

  • Peter Martin 27th Feb '21 - 10:59am

    @ William Francis,

    “Since UBI requires all income to be taxed -Why” All income is taxed now in the sense that we all have to provide annual returns and pay taxes accordingly.

    If you mean that there should be at least some small personal allowance, you are right. Do we really want to tax paper boys and girls on whatever small amount they might earn from their work?

    @ Peter Davies,

    ” I can think of no justification for that if you have a flat amount given to everyone including the poor.”

    I have just given William one justification as above. It depends on how generous the UBI is. Of course it all sounds very nice that we’ll all be taken out of poverty without having to bother getting up to go to work in the morning. We’ll all find or ultra creative selves, set up new businesses and maybe some of us will have time to write a best selling novel or record a hit song. Or maybe some of us just won’t bother!

    Look, if there is a shortage of work why don’t Lib Dems campaign for a reduced working week then we’ll all have a bit more time to do these things?

  • Joseph Bourke 27th Feb '21 - 12:02pm

    Peter Martin,

    there actually are small tax allowances now. Gross income of up to £1000 from self-employment and rentals can be disregarded for tax purposes.
    There are a number of other allowances and tax reducers in addition to the personal allowance. A £2,500 personal allowance for blind persons, a marriage allowance and a legacy married couples allowance for elderly couples. There is a zero starting rate for the first £5k of tax savings which falls into the first £5k of taxable income, a £1k personal savings allowance and a £2k dividend allowance,
    It is possible to have all income tax free at present depending on how affairs are organised.
    £20,500 can be tax free based on the personal allowance of £12,500, the savings starting rate of £5k, the personal savings allowance of £1000 and the dividend allowance of £2k. Additionally, Income and gains from ISA’s are tax free, there is a £12,300 annual exemption for capital gains income and 25% of money purchase pension funds can be withdrawn tax free.
    While it is likely that the de minimus allowance for self-employment and rental income would be retained, some of the other tax reliefs and allowances might well be rationalised with the introduction of a Universal basic income.
    UBI does not replace the incentive for work it simply provides a base floor of social security that anyone can fall back on in times of sickness or unemployment and is supplemented with disability and housing benefits as required.

  • @Joseph Bourke

    It’s actually interesting what a long list it is – and I think that you forgot that you get tax relief on money you put into a pension https://www.which.co.uk/money/pensions-and-retirement/personal-pensions/contributing-to-a-private-pension-explained/tax-relief-on-pension-contributions-explained-a27f53z7qg3f#:~:text=When%20you%20earn%20tax%20relief%20on%20your%20pension%2C,the%20highest%20rate%20of%20income%20tax%20you%20pay.

    And you can also pay into a private pension to avoid the High Income Child Benefit Charge – https://www.theguardian.com/society/2018/sep/01/high-earner-tax-penalty-child-benefit-50000-salary-pension

    “And that also states you can You can take up to £55 a week of your wages as childcare vouchers, on which you do not pay tax or national insurance”

    In fact it’s surprising anyone pays any income tax at all if they are wealthy – then again….

  • Peter Davies 27th Feb '21 - 1:23pm

    Children obviously would not personally receive a basic income so how they are taxed is not necessarily the same as adults. That said, paper boys are in direct competition with adult deliverers so their favourable tax treatment is largely a subsidy to employers of child labour.

  • Joseph Bourke 27th Feb '21 - 1:35pm

    Michael 1,

    The UK tax system had 1,190 tax reliefs as at October 2019. A tax relief reduces the tax an individual or business owes. There are two broad categories of tax reliefs: structural tax reliefs that are largely integral parts of the tax system and define the scope and structure of tax (such as the personal tax allowance); and non-structural tax reliefs where government opts not to collect tax to pursue social or economic objectives.
    Non-structural tax reliefs are often referred to as ‘tax expenditures’ . Examples include tax credits for companies’ research and development (R&D) costs and income tax relief on pension contributions There are actually 326 so called ‘tax expenditure’ according to the report of the NAO https://www.nao.org.uk/wp-content/uploads/2020/02/The-management-of-tax-expenditure.pdf , with HM Revenue & Customs (HMRC) reporting the cost of 111. These 111 tax expenditures had a combined estimated cost of £155 billion in 2018-19. That does not include structural tax reliefs such as the personal allowance.
    There is wide scope for reforming the tax system to make it both more equitable and economically efficient as was made clear in the Mirrlees review. It would make sense to consider such reforms in conjunction with the introduction of a UBI.

  • Thanks for the further info and the reference to the NAO report – I do note that quite a lot of the “tax expenditure” is where VAT is zero rated such as food which I don’t really count as “expenditure”.

    … or more accurately certain food as famously a chocolate digestive, although it’s a biscuit which are zero rated becomes subject to VAT when it’s covered in chocolate although a jaffa cake has been defined as a cake and therefore remains zero rated although it is covered in chocolate – https://www.crunch.co.uk/knowledge/tax/cake-or-biscuit-vats-the-difference/

    I do note that capital gains tax on main or sole residences raises £26.7 billion which would do quite nicely to fund the Dilnot Commission proposals….. !!!!

  • Joseph Bourke 27th Feb '21 - 2:50pm

    The Key point made by Mirrlees was that Britain’s tax system is ripe for reform in ways that could significantly increase people’s welfare and improve the performance of the economy.
    The review recommends that the rate structure of income tax should be simplified, and income tax and NICs should be merged.
    A single integrated benefit should be introduced to replace all or most of the current multiplicity of benefits, rationalising the way in which total support varies with income and other characteristics. UBI (supplemented by disability and housing benefit) could do just this.
    The UK applies a zero rate of VAT to far more goods and services than most other countries. Reduced and zero rates of VAT (for example on food) are often justified as a way of helping people on low incomes. But this is an expensive and highly inefficient way of doing so. Charging a reduced rate of VAT on domestic fuel consumption has all these defects and, in addition, effectively subsidises energy use and encourages carbon emissions.
    VAT should be extended to nearly all spending. This would reduce complexity and avoid costly distortions to consumption choices. The money raised can be spent on cutting income taxes and raising benefits in a way that is broadly distributionally neutral, and that protects work incentives, although inevitably there will be winners and losers from such a change.
    Housing is not subject to VAT. It is subject to stamp duty land tax, which is an inefficient and badly designed tax on transactions. It is also subject to council tax. But council tax is regressive without good reason, and in England and Scotland is now based on property valuations that are 30 years out of date. Stamp duty should be abolished and council tax reformed so that payments are fully proportional to house value and are based on up-to date values. This Proportional Property Tax, would effectively stand in place of a VAT on housing consumption.

  • @Joseph Bourke

    I appreciate the points that you make. And actually if I was a dictator then I’d put VAT on most things as the likes of Google can’t get round it whereas they can get round corporation tax.

    But… you do have to consider what is political feasible which I am not sure that you are here or on the thread on PPT.

    Ask the average person in the street and you will get the answer that VAT is a tax on “luxuries” or at best “non-essentials”. And there has been for example a big campaign to lower and now exempt sanitary products from VAT.

    It is also somewhat of a regressive tax – how much was debated when the coalition put up VAT to 20%. It is slightly less regressive because it is not levied on food and housing and at a reduced rate on gas and electricity. And higher incomes tend to spend a bigger percentage on housing. So I believe it tends essentially to fall more heavily on say the 3rd-6th deciles who are spending more as a percentage of their income on consumables.

    It is interesting though that although it was controversial at the time, it is not widely remarked upon now – although the Tories did make a big political mistake putting VAT on heating – alienating their older supporters.

    But VAT is an invisible tax as you seldom (as a consumer) get a specific invoice for it and no-one goes round totting it up and working out whether they bought chocolate digestives or Jaffa cakes! Rather like employers’ NI. And this does have its advantages!

    My first lesson though in economics was when the sweet shop put up the price of mars bars by 1p when the Tories increased VAT in their first budget!

    I fear that while I might like to grab capital gains tax on sole/main properties for Dilnot – it probably wouldn’t be politically acceptable!

    (And as we have discussed council tax isn’t really a property tax but a flat charge)

  • Joseph Bourke 27th Feb '21 - 5:09pm

    Michael 1,

    the Mirrlees review points out the the UK applies a zero rate of VAT to far more goods and services than most other countries. The French can get quite bolshi about tax as we saw with the gilets jaunes fuel tax protests, yet they levy VAT on food albeit at a reduced rate. Political parties have to make a choice about tax reforms in the round and as the saying goes “To choose is to be free.” No tax increase is popular unless it is paid by someone else. It is too easy to get lost in a self induced mental fug over taxation (forgetting that other taxes can be cut and/or benefits increased to more than offset distributional impacts), that leaves parties static and inert when it comes to tax policy.
    The NAO report notes that zero rating of new build houses costs close to £15 billion of foregone revenue. Who benefits? It is not the home-buyer. A combination of limited land supply, ultra low interest rates and help-to-buy schemes have pushed house prices and the profitability of house builders to an all-time high https://www.bbc.co.uk/news/business-47368308
    The economics of the housing market are that prices paid have little to do with construction costs. It is all about the value of land, the availability of deposits and the cost of mortgage finance. A VAT on new build would eat into housebuilders profits but is unlikely to increase house prices significantly above their already elevated levels.

  • Peter Davies 28th Feb '21 - 5:11pm

    UBI makes VAT changes politically feasible. VAT on fuel for instance is something we should obviously be supporting as part of our green agenda and yet we have opposed it because poor people spend a higher proportion of their income on fuel than rich ones.

    Rich people spend more though in absolute terms so putting VAT on fuel and dividing the revenue equally via UBI (plus a bit on Child Benefit) is clearly progressive.

  • William Francis 5th Mar '21 - 1:03am

    @Peter Davies

    Why exactly is taxing the poor necessary at all?

    What possible social utility is there in taking 20% of the income of someone making £5k, £8k or £12k a year?

    Because people making up to £100k get the same treatment on their first £12k?

Post a Comment

Lib Dem Voice welcomes comments from everyone but we ask you to be polite, to be on topic and to be who you say you are. You can read our comments policy in full here. Please respect it and all readers of the site.

If you are a member of the party, you can have the Lib Dem Logo appear next to your comments to show this. You must be registered for our forum and can then login on this public site with the same username and password.

To have your photo next to your comment please signup your email address with Gravatar.

Your email is never published. Required fields are marked *

*
*
Please complete the name of this site, Liberal Democrat ...?

Advert



Recent Comments

  • John Kelly
    @Leon “Leaving aside the insult that the headline (the guard was changed in Jerusalem, the capital of Israel where the Knesset meets , not Tel Aviv), I am mo...
  • David Raw
    What happens to all the agreed policy outcomes, amendments and wordings on the documentation that you have mentioned ? Do they just get put into a cupboard ...
  • John Marriott
    The real impediment to a fair political solution may actually be the pure form of PR employed to elect people to the Knesset. If ever there was a need for a 5% ...
  • Joe Bourke
    It is an interesting article, John. The Biden administration will surely have an important role to play but perhaps of more relevance may be Israel's rapproachm...
  • Peter Hirst
    China and Russia have strategic interests and they must sometimes overlap. China seems more emenable to western values despite its lack of democracy. They will ...