A decision by Barclays to pull out of an agreement allowing bank customers to withdraw cash from post offices for free has been criticised as “shocking”.

The bank is the only one to scrap over-the-counter cash withdrawals at Post Office branches, with 28 other UK banks signing up to a new deal that means millions of people can continue to benefit from free access to everyday banking services.

The move by Barclays prompted a wave of criticism, including from a regulatory body, and appears to be linked to a sizeable rise in the bank-funded fees paid to postmasters for providing these services. Barclays has separately announced its own proposals, which it said were designed to boost bank branch demand and improve access to cash.

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The Post Office announcement comes against a backdrop of concern that as bank branches and cash machines continue to close, many people, particularly in rural or deprived areas, could find themselves unable to access cash. In March 2019, a major report claimed the UK’s “cash infrastructure” was in danger of collapsing.

In 2017 the Post Office and the major UK high street banks struck a deal enabling anyone with a UK bank account to carry out a range of banking transactions at post offices. The following year the Post Office’s 11,500-plus branches handled more than 130m transactions on behalf of the banks. It said research had found that 28% of people had withdrawn cash at post offices in the last year.

The new agreement involves almost every UK bank and includes an “improved fee structure” under which postmasters will receive about three times more remuneration for providing these services than under the previous deal.

The Post Office said it was disappointed Barclays had chosen to stop allowing its customers to make cash withdrawals from 8 January 2020. They will be able to continue using other services.

Rachel Reeves, the chair of the cross-party business, energy and industrial strategy (BEIS) committee, said the decision suggested Barclays was forgetting its “wider social responsibilities.”

The Labour MP said: “Barclays need to think again. This unjustifiable decision from Barclays to stop customers accessing their own money from post offices is a deeply retrograde step which lets down customers, undermines the Post Office network, and potentially leaves people in many places without access to their own cash. Access to free cash withdrawals at post offices is vital, especially to those who are elderly and vulnerable.”

The consumer body Which? said: “Barclays’ shocking decision exposes the fragility of the UK’s cash system, and blows apart industry claims that the Post Office network is a solution to the cash crisis.”

The Payment Systems Regulator, a division of the Financial Conduct Authority, said Barclays’ move reduced the number of places where its customers could go to get cash, adding: “We are concerned about the impact this will have, and we will be closely monitoring the steps Barclays plan to take.”

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The Access to Cash Review, a body chaired by a former head of the Financial Ombudsman Service, said the bank’s decision was “damaging and counterproductive”, adding that while only a small proportion of its customers used this service, “it still amounts to 1.2m cash withdrawals every month. The people who rely on this service are often in rural and isolated communities.”

A Barclays spokesman said that “none of our customers will be without access to cash”, and that despite removing cash withdrawals, its financial contribution to the Post Office under the agreement would actually increase in 2020.

Barclays has pledged not to close branches in remote areas or where it is “the last bank in town” for the next two years. It is also launching other measures including a cashback scheme to enable customers to withdraw money at businesses in remote towns and areas where there is no branch or ATM alternative within 1km.