Unions and firms call for people's bank

Northern Rock would form foundation of state-backed 'Post Bank'

• Elena Moya
• guardian.co.uk, Sunday 5 July 2009

Unions and business groups are calling on the government to use Northern Rock as the foundation for a state-backed bank, that would also operate through the Post Office branch network.

The coalition published detailed proposals it said would give a boost to the post office network and prevent further closures. A "Post Bank" would revive and protect post offices, support communities and help smaller firms, while the banking system was still in disarray, it said.

It presented a number of options, ranging from using Northern Rock as a foundation for a mutually structured people's bank, to buying out the relationship between the Post Office and the Bank of Ireland.

The business secretary, Lord Mandelson, has backed the idea of a people's bank offering financial services through the network of about 12,000 post offices. But the government has other plans for Northern Rock, the lender it bailed out last year, and is widely expected to work towards a sale before the general election, possibly as early as the autumn. The coalition said about 120 small business were closing every day during the recession as banks cut off lending lines in order to restore their balance sheets.

UK banks still face about $200bn (£122.5bn) of losses linked to the credit crunch, according to the IMF.

"There's never been a better time to set up a Post Bank," said Billy Hayes, general secretary of the Communication Workers Union. "In order to ensure a viable future for post offices across the UK we urge Lord Mandelson to endorse this vote-winning initiative and to urgently take the necessary steps to introduce a Post Bank."

"The government must choose between short-term profit and securing the long-term future of financial services at the Post Office by establishing a trusted and non-profit making bank run through the post office network," added John Wright, chairman of the Federation of Small Businesses.

The Post Office already offers some banking services and bill payments, although the "people's bank" would also offer debit card facilities, current accounts, savings plans, loans, business services and financial advice currently available in main city-centre banks.