Cash: a new question

Bank customers could see the highly unpopular charges levied when they use a cash machine drop dramatically - perhaps to nothing - after an announcement by Lloyds TSB this week.

Lloyds chief executive Peter Ellwood told a Treasury select committee meeting - called to give the big banks a chance to answer former telecoms regulator Don Cruickshank's damning report into the industry - that a 50p surcharge would be levied on people who use Lloyds cash machines but are not Lloyds customers. The sum is the smallest yet quoted as a possible surcharge by one of the big banks.

The move could be good news not just for the 15 million Lloyds customers, but also for customers of all of the UK's major high street banks - which have nearly 40 million customers between them - as it will put rivals under intense pressure to follow suite. But critics say banks, which have been accused of acting like a cartel, will resist the pressure. They say hopes that the market will be opened out to new entrants are in vain and the only answer is to create a powerful bank regulator.

The banks are dead set against this. Matt Barrett, chief executive of Barclays, told the MPs last week that he disapproved of "the spectre of yet another regulator".

Mr Barrett and the final co-defendant giving evidence to the select committee, Bill Dalton of HSBC, claimed the Lloyds announcement proved the presence of competition among the big banks.

Consumer groups hope this is true. If it is, it will mark the end of the excessive charges which see particularly unlucky cash machine users paying £2.50 to withdraw as little as £10 because of disloyalty charges on customers who use other cash machines and surcharges on non-customers.

Barclays and HSBC currently quote £1 as the surcharge they will impose in January, when banks will be allowed to charge non-customers a fee. But, after Mr Ellwood made his surprise pledge, Mr Barrett told the MPs "I'll have to see, give me time to reflect" and Mr Dalton refused to say £1 was definite.

Barclays and HSBC may be wary about admitting that the Lloyds announcement will kick start a price war, but others are more straightforward. Tim Harrison, retail issues manager at Abbey National, said: "We will definitely take the new Lloyds charge into account when deciding what our surcharge will be."

Consumers groups hope the pressure that has been applied by Lloyds will nudge Barclays and HSBC to cut their charge. Stuart Cliffe, chief executive of the National Association of Bank Users, gave the announcement a cautious welcome: "At the worst Barclays and HSBC should follow Lloyds and charge non-customers 50p," he said.

Barclays is already feeling the pressure, after Tesco announced it would remove 74 Barclays cash machines from its stores. Asda has also said cash machines in its stores will have to be free to use. Barclays and the other banks which do decide to charge customers may come under increased pressure from outfits like Tesco, which are beginning to offer free more and more of the services you expect from your bank. Andrew Higgins, Tesco Finance director, said: "It is totally unacceptable that customers are being charged for cash. Tesco Personal Finance does not charge disloyalty fees or surcharges."

Philip Telford, a senior adviser at the Consumer's Association, said: "There is the chance that other major banks will lower their charges. And will it stop there? Some may come out with an even lower figure, which would be a very good thing." It is not inconceivable that competition could hot up so much that charges are dropped altogether. Nationwide and the Co-operative Bank already make their cash machines freely available to customers and non-customers. A Nationwide spokesperson said: "We don't believe customers should be charged for access to their money. Cash machines are customer service outlets, not profit centres."

Mr Cliffe agreed: "Charging people when they use a cash machine is just like a supermarket that charges a surcharge for frozen food because it has to maintain the freezer, or a garage that charges for using a spanner. It is an operating cost that should be borne by the bank."

Most banks are unwilling to take this point and it is entirely possible Lloyds' 50p pledge will only encourage other banks that have not currently come out with a surcharge to do so. NatWest and Royal Bank of Scotland have said they "don't know yet" whether they will levy a surcharge from January.

It will be possible to avoid surcharges and disloyalty fees when both are in operation from January by using only your own bank and any others with which it has free access deals. But some say this is not good enough, especially as the cost to banks when a cash machine is used is 30p, a lot less than the £1 - or the current top level of £1.50 - being planned by some of the banks, according to Mr Cruickshank, who this week was appointed chairman of the London Stock Exchange.

The Cruickshank report recommended that a regulator be introduced to monitor the payments systems. Consumers groups would like to see this taken further. Mr Telford said: "Access to a bank account is increasingly seen as essential. At the moment banks can do what they want. If they don't adapt their approach the Government may legislate. It could make them justify why they are charging a certain amount for a service."