Cheques to remain in use until replacement found, MPs are told

Richard North, independent chairman of the council, said no decision had yet been taken to scrap them and one would not be made until 2016 at the earliest.

He added they would only be abolished if alternatives were widely available and being used by groups currently reliant on cheques, such as the elderly and charities, and a cost-benefit analysis showed it was the right thing to do.

If these conditions were not met, the Payments Council would delay making a decision on whether to phase them out.

The council had announced in 2009 it was considering the move and had set a target date of 2018 for closing the cheque clearing system following a steep fall in the use of cheques.

Appearing before the Treasury Select Committee, Mr North said: “We have not made a decision to close the cheque clearing system. The first time we will look at doing this is in 2016.”

He added: “There is no question of there being a closure of the cheque clearing system without there being alternatives in place which are widely in use.”

But he admitted that, while he thought the Payments Council had made the right decision to consider abolishing cheques, it could have managed its message better.

Mr North said one of the alternatives was likely to be mobile phone payments, under which people could transfer money to another person just by knowing their mobile number. The other would be paper-based, and is likely to look and feel like a cheque, but would be processed more quickly and efficiently.

The Committee referred to a letter from Financial Secretary to the Treasury Mark Hoban in which he said he did not think there was a “credible and coherent case” for abolishing cheques.

Mr Hoban also said the Government may “intervene” to protect vulnerable consumers and businesses if no alternative to cheques was put in place before they were withdrawn.

But Mr North reiterated that the Payments Council would not withdraw cheques until a widely used, paper alternative was in place.

He said the use of cheques had fallen by 70 per cent since 1990 and by 42 per cent in the past five years, while usage is expected to decline by a further 40 per cent during the coming five years.

But in his letter Mr Hoban said in 2010 1.1 billion cheques were issued, which was still a “significant volume”.

However, Mr North responded that this amounted to just 3 per cent of all payments, or 7 per cent, excluding cash.

MPs also asked if the Payment Council’s decision to close the cheque guarantee scheme at the end of this month was the first “nail in the coffin” for cheques.