The theory is sound: a bank that will provide basic accounts for millions of people using post office counters as the delivery mechanism. But the execution of the Universal Bank has so far been flawed - and there are fresh suggestions that plans to launch in April 2003 may be scrapped.
Since the government announced its intention to set up the Universal Bank, there have been squabbles and counter- briefings between the banks and Consignia, the renamed Post Office, over the delivery mechanism. At the same time, there has been tension between the Department of Trade and Industry and the Treasury. And privately, bankers have raised concerns over the possibility of fraud because of the way the accounts are opened.
Initially, the Universal Bank was going to be a winner for pretty much everyone. It was spawned by the government's decision to automate the payment of benefits into bank accounts, and would give the less privileged access to a bank account. At the same time, it would save the government up to £600m a year. Consignia, which will lose £400m a year when benefit payments are automated, will earn around £100m a year to offset this loss .
The service aims to offer card accounts to benefit claimants who do not have bank accounts - thought to be between two million and four million people. These basic accounts - no overdrafts allowed - will be run by banks but accessible at post offices.
In May, the UK's high street banks signed up, reluctantly, to pay £180m over five years to subsidise the new bank. Until that point, the whole project was probably doomed. Although the deal had been grudgingly agreed by the big four clearing banks - the Royal Bank of Scotland, HSBC, Lloyds TSB and Barclays - it was the Halifax that was the stumbling block.
The country's largest mortgage lender refused to sign the detailed memorandum of understanding because of concerns that its own new basic accounts could prove more popular (and so more costly) than those of the upmarket clearing banks. The Halifax already has 1.5 million basic bank account holders. The basic accounts provided through post offices are expected to be unprofitable for the banks.
The Halifax was eventually persuaded of the benefits of the system - it joined the pack and signed up. But a new stumbling block has emerged. This time, it is a government row between the DTI and the Treasury over who (and therefore how many) will qualify for the accounts, combined with fears about the rising cost of delivering the service. The greater the number of Post Office accounts opened, the higher the cost to the taxpayer. This is because the Post Office will charge a fee for handling the cash paid in and out of the accounts. This will be paid by the government for the Post Office's card accounts and by the individual banks for any transactions made through their own basic bank accounts.
Although the number that will qualify for the accounts could be anywhere between two and four million, there has been no proper indication of how many people will be served, which is in turn stalling the installation of the technology needed. Internal research by Consignia has indicated that about six million people might be interested in the account - if this is true, it will become far more costly for the government than if they were using basic accounts run by banks.
So what happens next? Contracts have to be finalised this autumn if the Universal Bank is to stand a chance of hitting its target of taking on customers in early 2003. If this doesn't happen, the computer system won't be joined up in time. This will leave Basil Larkins, the head of network banking at the Post Office, with a large headache.
It will also leave the banks in limbo. Although they have all signed up in principle, there remain rumblings of discontent within the banks. Halifax is not alone in providing basic accounts. Most of the banks claim to have a social conscience and provide basic accounts of some sort.
The inescapable fact is that the Universal Bank has become a millstone round the neck of all concerned. It promises to deliver, in one fell swoop, the sort of welfare economy that the government wants to provide. It will also save rural post offices - the 18,000-strong network, which has been rapidly declining, may double as a result. Logistically, it is proving to be a nightmare. And the reality is that getting the Universal Bank up and running is going to prove almost impossible to do.
Claire Oldfield is a journalist with the Financial Mail on Sunday