Bank Closures: Impact on Rural Communities

Lord Altrincham Excerpts

Thursday 13th February 2025 Lords Chamber

[Lord Altrincham (Con)]

My Lords, I declare my recent directorship of the Co-operative Bank, which has tried hard to maintain a good branch network, notwithstanding the widespread closures of bank branches all over the country for the past 30 years. I commend the right reverend Prelate for raising this important issue for rural communities—perhaps also for Newcastle, the north-east and the whole country. The Church plays an important role for the vulnerable and perhaps for all society, but banks do too, in the sense that financial services are a mirror to society.

Banks and regulators have a tendency to conflate this issue with access to cash—the distance to the nearest cash machine, say, although hopefully not by swimming, as the noble Baroness pointed out. Banks like to say that technology changes have created a demand for online services and a reduction in the use of branches. In this, banks are conveniently in line with regulators, which focus on cash machines. The FCA last year wrote to the banks with guidelines on cash services, despite efforts made in Parliament during the passage of the Financial Services and Markets Act 2023 to protect counter services.

But people like bank branches because they need help. They may need help with fraud. A young person might need help finding out how to get a mortgage. Someone recently married might ask about opening a joint account. They might have questions about children or divorce. They might ask about getting a power of attorney for a parent, or about death. In this way, bank branches become part of the life cycle of people and a community, much as retailers do. When they close, that help and that connection inevitably fragment to social media and elsewhere.

Alas, the number of bank branches has fallen everywhere—down to 5,500 or so in 2023 and probably closer to 3,000 today, as we have heard. This has been an unintended consequence of financial regulation over many years. It started with the FSA and FCA regulations about giving financial advice, which had the consequence of banks ceasing to provide financial advice. This is a good example of well-intentioned but naive regulation to improve consumer protection leading to consumers getting no help at all.

Then, there was cost pressure on the banks, partly as a result of regulation, which made it hard to maintain buildings and branches. It is particularly regrettable that the advantages of ring-fenced banks—a theoretical concept of prudential regulation which comes at an actual, not theoretical, cost of over £1 billion a year to the UK economy—have had the real-world consequence of a reduction in consumer utility through the closure of branches. While the banks are safe, the banks have, as a matter of fact, closed.

The noble Lord, Lord Arbuthnot, referenced the plans to provide some support through post offices and the new banking hubs. There may be charity initiatives that could maintain a degree of branch service as well. As of this year, only 100 hubs are operational, and we understand that the Government are committed to achieving 350 hubs by 2029. The Post Office, we think, has indicated a higher number of 500 by 2030. Clearly, these numbers are insufficient, as other noble Lords have pointed out. This issue is rather urgent in areas with no banks at all. Nevertheless, hubs are unlikely to replicate the services and knowledge of a working bank branch.

There is some evidence that closures are now slowing, particularly as Lloyds Bank gets to the end of its closure programme. There may be some competitive advantage to the remaining banks with branches—led by Nationwide, which now has the largest network, with around 700 branches. The regulatory pressure to reduce the number of branches, notwithstanding the Financial Services and Markets Act 2023, may be partly offset by the needs of small businesses, which do need branches and do need to handle coins and cash. For them, we must be thankful.

Branch closures are part of a wider retail shutdown going on at the moment, and all the more reason to ask the Government to intervene, perhaps by asking that the banks hold their branch networks now at the level of around 3,000 branches. We could call this level the “Newcastle number” in honour of the right reverend Prelate. We need to mark at some point where the bank closures end, and now is as good a time as any, particularly because the process is slowing. At the very least, we should give time for alternative services to grow before the situation becomes acute, not only in rural communities but everywhere in the country.