Closure of bank branches: Impact on rural communities

Approximate read time: 15 minutes

On 13 February 2025, the House of Lords is scheduled to debate the following motion:

The Lord Bishop of Newcastle to ask His Majesty’s Government what assessment they have made of the number of bank closures in the past decade and the impact on people in rural communities.

1. Closure of bank branches

1.1 Bank branch closures 1986 to 2024

Since 1986, a significant number of bank branches in the UK have closed. Data from the British Banking Association (BBA) and the Office for National Statistics (ONS) has shown that in 1986 there were 21,643 bank and building society branches in the UK, compared to 6,870 in 2024. The decline in number of branches over this period is set out in figure 1 below.

Figure 1. Total number of bank branches and building societies in the UK 1986–2024

1.2 Reasons behind branch closures

Stakeholders have attributed the reduction in the number of bank branches in the UK to changing customer habits and technological advances. For example, in 2021 the then chair of the House of Commons Treasury Committee, Mel Stride, wrote to several high street banks about branch closures and the reasons behind their decisions. The chief executive of Barclays UK, Matt Hammerstein, responded:

Profound technological changes, and the ease with which customers can access their accounts digitally means that our physical branch network is experiencing a sustained fall in demand. In fact, the majority of our customers (74%) now choose to interact with us via telephone, online, or mobile banking.^[1]

Several commentators also contended that the Covid-19 pandemic exacerbated the trend away from in-person visits to bank branches. For example, Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, has argued that:

The closure of bank branches is a vicious circle. The more that close, the more people move online, so there are fewer people relying on high street branches, so more of them close.

The pandemic picked up the pace around this ever-decreasing circle, closing more branches temporarily and causing online banking to spike.^[2]

The Financial Conduct Authority (FCA) has said that the downward trend in the number of bank branches is likely to continue due to changes with technology and customer behaviour.^[3] It has also noted that banks have made savings from closing branches:

Banks are achieving cost savings from closing branches: our analysis of major UK retail banks showed that branch network costs for the six major banks fell by around 6% during the three-year period to 2017.^[4]

1.3 Rural communities’ access to bank branches and cash points

The FCA has published an overview of geographical cash access coverage in the UK between April and June 2023.^[5] It found that:

• 76% of the rural population of the UK lived within one mile of a free-to-use cash access point offering withdrawals (a bank, building society, Post Office branch, or free ATM), and 99% lived within three miles.
• 36% of the rural population of the UK lived within three miles of a bank or building society branch, 69% lived within five miles and 97% lived within 10 miles.
• 95% of the rural population of the UK lived within three miles of a bank, building society branch or a Post Office and 99% lived within five miles.

2. Impact of the closures on rural communities

The Rural Services Network (RSN), a special interest group of the Local Government Association, has warned that the closure of bank branches has negatively impacted rural communities.^[6] It highlighted that residents in rural areas often experience poor broadband and mobile signal which can make accessing telephone and online banking challenging. The RSN has argued that such issues can leave rural residents at a disadvantage when it comes to managing their finances. In addition, the group noted that these problems can be compounded by poor public transport in rural areas, which can make accessing remaining bank branches, which may be further away, difficult.

Research published in 2018 by Highlands and Islands Enterprise, the development agency for the Highlands and Islands of Scotland, stressed similar issues.^[7] It found that the distance to alternative branches in the Highlands and Islands was on average much further than in England and Wales, and in some cases even required a ferry journey. It also said that access to cash beyond what is available through ATMs was important to various parts of the rural economy. For example, it said that access to cash was “particularly crucial” to the functioning of small retail shops and local businesses”. It also argued that it was “core” to the functioning of the tourism, agricultural and fishing sectors, partly because of their seasonal demand for labour but also because of their traditional reliance on cash. Community organisations, “the life blood of many communities”, were also reported to be dependent on the ability to deposit and access cash for their day-to-day functioning.

3. Current government policy

3.1 Overview

The government recently answered a written question on the impact of bank branch closures on rural communities.^[8] The Economic Secretary to the Treasury Emma Reynolds said that the government understood the impact of such closures and was committed to “championing sufficient access for all as a priority”.

Setting out the measures being taken in this area, Ms Reynolds highlighted the government’s work with industry on the roll out of 350 banking hubs across the UK by the end of the current Parliament.^[9] Banking hubs contain a counter where you can access cash services whenever the hub is open and whoever you bank with.^[10] Ms Reynolds said that over 200 hubs had been announced so far, with more than 100 already open. In its 2024 general election manifesto, the Labour Party had given its support to banking hubs as part of plans to support the Post Office and “reinvigorate the high street”.^[11]

In addition, Ms Reynolds has highlighted FCA guidance which expects firms to carefully consider the impact of planned branch closures on their customers’ everyday banking and cash access needs and put in place alternatives where reasonable.^[12] She also referred to alternative options to access everyday banking services, such as telephone, mobile and online banking, as well as banking via the Post Office.

3.2 Banking hubs

In a debate in the House of Commons on the closure of high street services, Gareth Thomas, minister for services, small business and exports, gave further information on the operation of banking hubs in the UK:

The hubs offer basic counter services, provided by Post Office staff, that allow people and businesses to withdraw and deposit cash, deposit cheques, pay bills and make balance inquiries. Many hubs also have dedicated rooms where customers can see community bankers from their own banks to discuss things such as staying safe from fraud, adding a lasting power of attorney, making payments or registering for online banking.^[13]

Mr Thomas said that of the 100-plus hubs already open, 12 are located in Scotland, seven in Wales and five in Northern Ireland, with the remaining hubs found in England.^[14] He stated that of the 200 extra hubs announced, a further four would be in Wales, one in Northern Ireland and 17 in Scotland. Mr Thomas also explained that the location of banking hubs are determined independently by LINK, the operator of the largest ATM network in the UK. The criteria used when considering locations includes population size, whether other banks remain nearby, the number of small and medium sized enterprises on the high street, public transport links and levels of vulnerability in the community.

Further information on banking hubs, as well as reaction to their creation, can be found in section 5 of the House of Lords Library’s briefing, ‘Closure of high street banks: Impact on local communities’ (19 January 2024).

3.3 Role of the Post Office

The role of the Post Office in providing banking services was also noted by Mr Thomas.^[15] He said that with the Post Office’s role now including acting as basic high street banks, the government would “hold the Post Office to account to ensure there is enough provision across the country”. He said that the government wanted 99% of the population to live within three miles of a Post Office and 90% to live within one mile. Mr Thomas noted that the government provides financial support to the Post Office to “ensure that the loss-making parts of the network can be maintained”.^[16]

4. Previous government policy

4.1 Overview

The previous Conservative government stated that decisions about bank branch closures are made by the management of each bank on a “commercial basis, with which the government does not interfere”.^[17] However, it also said that the impact of branch closures should be mitigated “where possible” to ensure customers have access regardless of where they live. The then government expressed support for industry working together to provide alternative banking and cash services, such as banking hubs, and said that it had committed to delivering hubs in over 100 communities. As with Labour, it also highlighted alternative options to access everyday banking services and stressed that the ‘Post Office banking framework’ allows 99% of personal banking and 95% of business customers to deposit cheques, check their balance, and withdraw and deposit cash at more than 11,500 Post Office branches across the UK.

4.2 Financial Services and Markets Act 2023

The previous Conservative government also legislated to protect access to cash. The Financial Services and Markets Act 2023 included provisions relating to cash access services. These included a requirement for HM Treasury to produce and keep under review a policy statement on cash deposit and withdrawal services. It also placed a requirement on the FCA to ensure reasonable provision of cash access services in the UK, having regard to the Treasury’s policy statement. In addition, the 2023 act gave the Bank of England powers to oversee the wholesale cash industry.^[18]

4.3 Policy statement on access to cash

In accordance with section 54 of the 2023 act, HM Treasury published a policy statement on access to cash deposit and withdrawal services for personal and business current accounts across the UK in August 2023.^[19] The statement set out the then government’s minimum expectations for banks regarding access to these services. It said that FCA analysis had shown that at least 95% of people in predominantly rural areas had access to these services within three miles of where they lived. The then government said it wanted to ensure that this level of coverage was maintained.

This policy statement was welcomed by several organisations, although some wanted additional information on how measures would be applied. For example, Martin McTague, the national chair of the Federation of Small Businesses (FSB), stated that his organisation welcomed the plans in principle.^[20] However, he said that the FSB awaited further detail on how many of the measures would be implemented. Jenny Ross, the editor of Which? Money, also welcomed the guidance, stating that it was “good to see the government moving quickly and issuing guidance for banks to follow”. In addition, she argued that the FCA “must be ready to take strong action” against banking companies that “fall short of the required standards”.^[21]

However, others were more critical of the Treasury’s policy statement. Labour’s then shadow economic secretary to the Treasury, Tulip Siddiq, argued that it was “not enough to protect in-person banking services for all communities”.^[22] In addition, Derek French, a former NatWest executive and campaigner for protecting people’s access to cash, described the statement as “very vague”. He also argued it was unclear which institutions would be required to protect access services, describing placing an obligation on any one commercial bank as “unworkable”.^[23]

5. Financial Conduct Authority action

In recent years, the FCA has also acted to minimise the impact of bank closures. This has included publishing guidance for banks that intend to close or reduce their branches or services and setting out new rules to ensure access to cash services.

5.1 Guidance on closing or reducing services

In 2020, the FCA published initial guidance outlining its expectations for banks who intended to close or reduce either its branches or the number of free-to-use ATMs.^[24] The aim of this guidance was to ensure that the implementation of such decisions resulted in fair outcomes for consumers, particularly those who relied on accessing cash.

The FCA revised its guidance in 2022, stating that some banking companies had “fallen short of [the] expectations” outlined in the original guidance.^[25] It said that in some cases banks had opted to remove services, such as counter services from branches, without putting alternate provisions in place. Some had also reduced the hours that branches were open, rather than fully closing them. As a result, the FCA said that firms would now need to consider FCA guidance when planning a full closure or proposing a reduction in branch opening days/hours or services where this would have a “significant impact on customers”. This revised guidance set out several expected actions for banks considering the closure or reduction of services.^[26] These included:

• Notifying the FCA of its intentions “in good time” before deciding whether to change its services and continuing communication throughout the process. This would allow the FCA to monitor whether banks were treating customers fairly in line with its consumer duty.
• Analysing the needs of current site users, including the needs of customers in vulnerable circumstances, and considering alternatives to meet those needs.
• Providing the FCA with a clear summary of the results of the analysis, encompassing customer needs and usage, expected impacts, potential alternatives and plans for stakeholder engagement. The guidance noted that the FCA may request further analysis if it is not satisfied.
• Clearly communicating with customers and other relevant stakeholders at least 12 weeks before implementing a proposed closure or conversion.
• Publishing a “high level summary” of analysis on customer needs, which should be “easy for customers to find and accessible”. Additionally, banks would be required to publish a list of stakeholders, besides customers, that it has contacted about its plans.

5.2 Rules on cash access services

In line with the government’s policy statement on access to cash, the FCA has developed new rules to ensure that as cash access services evolve, they “continue to be provided on a reasonable basis”.^[27] The FCA noted that while its new powers, granted through the Financial Services and Markets Act 2023, focused on access to cash services, rather than wider banking services, bank branches were “relevant” because of the cash access they provide.

The FCA consulted on the changes in December 2023.^[28] In July 2024, it published a policy statement setting out new rules which it said would come into force on 18 September 2024.^[29] It requires banks to assess availability of services whenever a bank plans to close a facility (including a branch or ATM), a non-bank (for example, a shop) plans to close a facility, or when they receive a community request to carry out an assessment. If an assessment, carried out by LINK, found that the closure would cause a deficiency in services, or the community already had a deficiency of services, banks would have to address this. This could involve reversing a decision to close a branch or opening a new shared banking hub in the area.

6. Read more

• Debate on ‘Closure of high street services: Rural areas’, HC Hansard, 5 February 2025, cols 315–40WH
• House of Commons, ‘Written question: Banking hubs: Rural areas (7330)’, 4 October 2024
• UK Finance, ‘UK payment markets summary’, July 2024

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