Post Office could become 'people's bank' while councils may offer competitive mortgages again

02 February 2009 / by Rebecca Sargent
As the recession continues, new measures are being revealed as the Government desperately seeks to prevent the UK economy becoming worse.

The latest moves to alleviate some of the lending pressure caused by the banking crisis include proposals to turn the Post Office into a 'people's bank', and for councils to start providing mortgage finance again as council leaders voice their support for bringing back council mortgages for the first time since the 1980s.

According to reports in The Guardian, the future of the Royal Mail is currently under debate as MPs discuss the extension of the national institution's banking services which could allow it to operate as a fully fledged bank.

Minister for postal affairs, Pat McFadden told The Guardian he is keen for the plans to come together and for the Post Office to offer debit cards and current accounts on top of the credit cards, mortgages, personal loans and savings accounts that it already provides.

In response, Royal Mail Group chief executive Adam Crozier told The Guardian: "Royal Mail has been very clear that we want to expand the range of banking services we provide through the Post Office network and there are a number of things in the pipeline."

Meanwhile, according to the New Local Government Network (NLGN), proposals have been announced by the Communities and Local Government department that the Standard National Rate of interest at which councils can lend, will decrease to 3.93 per cent today from 5.07 per cent, giving them more of an incentive to revive council mortgages, which were once popular until rates became uncompetitive.

Commenting Chris Leslie, director of NLGN said: "Councils used to be in the mortgage business until the 1980s when this facility was wound down by the Government, as it was then assumed that the private banks could cope.

"We now know that a diversity of mortgage provision is needed to prevent the current crisis."

Speaking of the banking crisis and how councils may help to reduce some of the pressure, he added: "The private banking sector's mistrust of one another means that it should fall to the public sector to ease liquidity and offer mortgage finance to the public.

"With the capital markets more willing to trust local authorities than the private banks, councils could prudently pass on cheaper mortgage capital to some of their residents."

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