Treasury to unveil special bank accounts for poorest families

A SPECIAL bank account for two million people who do not have conventional cheque book accounts is to be unveiled on Friday as part of a Government drive to tackle social exclusion.

Ministers want the accounts to provide banking facilities for people who would fail credit checks and who are considered too high-risk to be given normal accounts with overdrafts.

The new accounts will allow holders to pay their bills, withdraw cash, and receive benefit payments. But they would not be able to go overdrawn.

The plans, drawn up by a Treasury team investigating exclusion from personal financial services, aim to replace the giro system of benefit cheques when the payment of social security goes electronic in 2005.

The government has backed away from earlier plans to force banks to provide an account to anyone who asks for it - much to the relief of the banking industry, which has lobbied hard against such a legal obligation. A similar legal right to a bank account has long existed in France but has been dismissed as unworkable in Britain.

Nevertheless, the government is keen that lower income families should be able to benefit from the discounts now available to richer families who opt to pay bills for basic utilities services like gas, water and electricity by direct debit. The cost of basic services is an important share of poorer families' household budget.

The Treasury also hopes that the moves towards electronic payment of benefits will result in huge administrative savings enabling better targeting of payments to those who need it most.

Friday's report, which is the result of more than a year of consultation between the Treasury and the banking industry, will also outline measures to encourage local authorities to use the powers they have to work with banks and financial institutions to encourage them to set up services in areas like sink estates where access to basic banking and insurance services is non-existent.

It will also set out measures to encourage the development of credit unions - voluntary self-help organisations providing small-scale loans and deposit accounts to people who are either unwilling or unable to get credit in the normal way.

The Government will pledge to bring forth legislation to allow credit unions, which have been barred from competing directly with banks, the right to offer basic checking accounts as well as more comprehensive credit facilities.

There were fears that the initiative would be delayed by the cabinet reshuffle, which led to the replacement of Patricia Hewitt as Economic Secretary to the Treasury, minister responsible for the initiative, by the younger Melanie Johnson.

The initiative has the support of Tony Blair, the Prime Minister, who sees it as touchstone of the government's commitment to improve the lot of the underprivileged.

The report also highlights the so-called red-lining by insurance firms of high-risk areas, which often results in companies either charging higher insurance premiums to insure property in underprivileged areas or in some cases refusing to insure property at all.