Developments in Government Banking in the UK
presented by Ian Taylor, HM Treasury, Government of the UK
Main Development Objective
Creating a single efficient and cost-effective service meeting the needs of:
- Revenue and Customs;
- National Savings and Investments (the UK government’s retail savings agency);
- Office of the Paymaster General (an existing shared service operation providing banking services to 900 public sector customers);
While retaining overnight balances in the Bank of England for aggregate cash management.
Why are we doing it?
A series of reviews and feasibility studies pointed to it being a natural development:
- potential for economies of scale;
- concentrating and developing expertise;
- better operational links with the commercial banking sector.
The government’s current principal banker – the Bank of England – announced last year that it wanted to cease being a volume transaction processor, essentially forcing a change in any case.
Cash Management
All overnight balances pooled at Bank of England
UK Debt Management Office (part of HM Treasury) actively manages the pooled cash position, eg:
- lending when there is a daily surplus;
- borrowing when there is a deficit.
Needs good visibility of the forecast end of day position
So the new service must provide real time data to support accurate intra-day forecasting
Indicative Transaction volumes - 2005-06 Estimates
| | Payments
millions | Receipts
millions |
|---|
| Paper based payments | |
|---|
| Cheques | 25.3 | 21.8 |
| BGC | - | 4.0 |
| Electronic transfers | |
|---|
| 3 Day cycle (BACS) | |
| Direct Credits | 380.0 | 7.5 |
| Direct Debits | - | 21.6 |
| RTGS (CHAPS) | 0.07 | 0.5 |
| Other transactions | - | 1.8 |
Indicative Transaction values - 2005-06 Estimates
| | Payments
£bn | Receipts
£bn |
|---|
| Paper based payments | |
|---|
| Cheques | 19.7 | 104.4 |
| BGC | - | 17.4 |
| Electronic transfers | |
|---|
| 3 Day cycle (BACS) | |
| Direct Credits | 265.0 | 113.0 |
| Direct Debits | 0.1 | 40.0 |
| RTGS (CHAPS) | 54.4 | 228.0 |
| Other transactions | 4.9 | 7.0 |
Proposed Data and Financial Flows
Proposed Contractual Arrangements
Progress: The Market
We have had 2 consultations with the market:
- informal bidders conference last November
- formal responses to a detailed consultation paper this Summer
And generated a high level of interest from UK banks and outsourcing operators.
Progress: Design and Transition
All departments are now involved in developing their transition plans.
Different challenges for each:
- Customs and Revenue currently do all banking ‘in-house’;
- Customs and Revenue also working on merging the two departments;
- National Savings and Office of Paymaster General: ‘back offices’ totally outsourced already.
Timetable
December 2005 – launch formal procurement
December 2006 – award contracts
2007 – systems configuration by contractors:
- detailed transition planning and preparation by partners
2008 – transition of services
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