A ready made People’s Bank

The days of private good and public bad are over. The credibility of the banking and finance industry has crumbled before our eyes. But state intervention in the form of credit and regulation alone will not turn the crisis around. For the long term, we have to furnish crucial areas of public interest with publicly accountable, state-owned institutions. The first test of whether the government gets this is about to come.

Sitting on the desk of James Purnell, the work and pensions secretary, and Peter Mandelson, the business secretary, is the decision about whether the post office card account should remain in public hands or be privatised. That decision will tell us whether the government realises that the game has changed.

As the demand for fairness, security and trust grows by the day, the government should halt the ongoing break-up of Royal Mail and its subsidiary Post Office Ltd and reconstruct them as key institutions in British economic, financial, banking and community life. With relative ease, the government could create a universal People’s Bank, based on the Post Office and the Post Office card account with its 5 million cardholders. It could stop the proposed closure of 2,500 post offices and instead support them as trusted social, economic and sustainable centres of finance, communication and community cohesion. This great network could become the underpinning of local economic resilience.

Our great national postal structure is a trusted public service. What a banking system needs more than anything else is trust. The banking sector has eroded that trust, leaving high anxiety. Banks have also physically withdrawn from large areas of Britain, and in large part broken their expertise in local knowledge and decision-making, which made them a strong part of local business communities. With the implications of the current crisis still to play out in full, this kind of expertise will be critical.

A People’s Bank, based on the Post Office and its network of 14,500 branches, would provide the public service which the banking system has failed to deliver. Britain created the first postal savings bank in 1861, and by the early 20th century many other nations had followed suit. The core idea is simple: use the one state institution that can be found in most neighbourhoods and rural areas – the post office – to encourage small savings and a habit of thrift.

The major remnant of such a system, the post office card account, is currently – and disgracefully – out to tender, with bidders including some of the discredited organisations that have squandered our trust. The government must award the tender to the Post Office. The new card should have greater functionality, including deposit making, direct debit, free ATM cash access and a debit card.

For 20 years, governments have applied now discredited business models to Royal Mail and the Post Office. Public service has given way to deregulation and profit-driven ideology. Of course, public institutions must be run prudently, they should be modernised and be responsive and accountable to us as citizens. But public services also create wealth – small and medium-sized businesses rely heavily on the Post Office – and they are motors for local economic resilience. The refusal to support vital deprived post offices to the tune of £150m a year through the social network payment after 2011 now looks silly in the light of bank bail-out sums.

The Hooper review on the impact of liberalisation on British postal services is about to report. It has already found liberalisation and deregulation have failed most Royal Mail users. The government needs the confidence to make the case for public services in a world in which the myth of free-market superiority has been damaged beyond repair.