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Local Government Association seminar on ‘The Future of Post Office Services’

Pat McFadden MP,  Minister for Business, Innovation and Skills
Smith Square, London,  18 October 2007

I am pleased to have the opportunity to take part – if only fairly briefly - in this Local Government Association seminar on ‘the Future of Post Office Services’. More specifically, today’s event is focused on the programme to close 2,500 sub post offices and establish 500 new outreach locations before the end of calendar year 2008.

I am not going to pretend that this process is an easy one or a popular one. I think we would all rather this did not have to happen. But simply wishing it away is not possible for some of the reasons I am going to set out today.

The process has begun with 5 out of around 50 area plans published and out to public consultation. There is therefore some very early practical experience of a key part of the process to consider and discuss today.

Most of you are aware the Government announced the decision to reduce the size of the network in May of this year but Post Office Ltd are responsible for the implementation of that decision and for the dialogue with local communities which must take place as a result.

I want to set out the context in which this decision was taken.

4 million fewer people walk through the doors of our post offices every week compared to a few years ago.

Post Office Ltd has been posting significant losses for some years and lost around £4 million every week last year. Were we to do nothing, these losses would rise in the future, calling on ever greater subsidy from the taxpayer. At the same time, subpostmasters and mistresses would be leaving the network on an ad hoc basis, with no compensation for themselves and resulting in an uncontrolled decline in the network.

800 post offices have fewer than 16 customers per week, and in those post offices each transaction costs the taxpayer £17 in public subsidy.

1600 post offices have fewer than 20 customers per day and across those offices the subsidy per transaction is £8.

And in urban areas some 1,000 sub-postmasters have at least 6 other competing branches within a mile of their business.

Against this backdrop it was the responsible thing to do to take the difficult decisions that were announced in May.

It has been said that the Government has driven some of these changes through our own policy changes, for example through the way benefits are paid and putting services online and I want to deal with this point.

Firstly, payment of benefits into bank accounts was begun by the last government and for reasons I understand. It costs 1p per transaction to pay a benefit or pension into a bank account. To do so through the POCA costs 80p. And to pay a benefit by girocheque costs £1.80 per time, with an increased risk of fraud also.

As we meet here today, 80 per cent of pensions are paid directly into bank accounts. Among new retirees, that number is 90 per cent and we expect it to rise. This is the way most people get their salaries paid. It is what they expect. We have said we will maintain the choice for pensioners, and as you will know we have pledged to maintain and have a successor to the current POCA beyond 2010. But to reverse the trend towards payment into bank accounts would run counter to how people live their lives today, it would cost the taxpayer some £200m per year and would open the system up to much greater risk of fraud.

Similarly, with online services. As a government we cannot and should not say to people that what they are used to doing in the private sphere of their life is going to be denied to them in the public sphere. Since, for example, putting car tax renewal online, this service has been used by some 1 million users a month with half of those outside opening hours. The option is still there to renew at the post office but millions of people are choosing to do this in their own time, at their oen convenience using an online service available 24 hours a day.

Many local authorities here have taken similar decisions by making available the chance to pay council tax and do other transactions online. And I understand why. It is because you, like the government, want to serve the public in a way that is convenient for them.

In this debate saying “stop the world, I want to get off” is no future for our post offices. Competition is out there. It’s not going to go away. The BBC chose to change the way we pay for TV licences because they found a cheaper alternative. So the issue is not government decisions on how services are made available – it is changes in how people live their lives and the facts of a competitive environment.

These technological trends I have referred to are not going to disappear. In fact they are probably likely to intensify. So the answer for post offices must not be a plea to turn back the clock or to give ever rising subsidies but instead a quest for new reasons to bring people through the door.

Now that does not mean we take a purely commercial view of the post office. I appreciate it plays an important social role in local communities in rural and urban areas. That is why Government gives the Post Office network an annual subsidy of £150m a year. Some people question that subsidy and ask whether it is worthwhile. I believe it is justified and helps to maintain a national network. Indeed, if the post office were run as a purely commercial enterprise some 10,000 post offices would close, not 2,500.

Total government support to the Post Office network will be around £1.7 billion up until 2011. This includes the £150m a year network subsidy, payments to sub post masters and sub post mistresses leaving the network in recognition of the many years service they have given to local communities, coverage of losses in the crown network and money for new investments.

As well as the headline decision to reduce the size of the network, government also announced new access criteria to ensure reasonable access to post offices throughout the UK. We were trying to avoid the network declining in an uncontrollable manner. Broadly speaking these are that you should be within a mile of a post office in urban areas and within three miles of one in rural areas. A number of other factors are also taken into account.

And alongside the closures Post Office Ltd will be developing 500 new outreach projects.

With Government funding of £25 million, the Core and Outreach model for new ways of providing post office services has already been extensively trialled across the UK by Post Office Ltd. Research into these pilot trials established that satisfaction levels of customers using Outreach sites were in excess of 90% and compare well with traditional bricks and mortar branches.

In reshaping the network on a strategic basis, Post Office Ltd will plan provision in a way that makes commercial sense for the company but also works for sub-postmasters and for customers. There are many small communities which have had a post office for years but no longer attract sufficient numbers of customers to support a full time branch. Many of these are close to others in a similar position. Where that is the case, there is an opportunity for Post Office Ltd to review local provision and seek to put in place a structure that is sustainable by teaming up with an entrepreneurial sub-postmaster willing to take on other sites and develop the business with the aid of a larger customer base whilst retaining access to post office services that may otherwise be lost.

Two weeks ago I had the opportunity to visit two of the outreach locations established a couple of years ago in the Dumfries and Galloway area. One was a service provided in a local shop a few hours a day, a few days a week. Wallet sized cards had been distributed in the village to let people know the opening hours. Speaking to customers and staff it works well for the Post Office, for the local people and for the local shop which hosts the service. Down the road another model was being pursued where the retailer provides the service in partnership with the sub postmistress in the neighbouring small town. Different models but the same idea – to think of ways that a service can be provided in villages which have been unable to sustain full time dedicated post offices of their own.

Visiting these villages and talking to staff and customers I was struck by the fact that we should probably have done it years ago. Technology has perhaps made it easier and has moved on with the equipment, but I am glad that this kind of service is now rising up the Post Office’s agenda.

It is the kind of creative thinking that will be needed to sustain the network in the future.

Another issue raised with me a lot, both in parliament and in my own mailbag is that if the network has to reduce in size, let us at least ensure there is a proper dialogue to implement the change in a sensible manner.

This is something I believe is understood by Post Office Ltd. In my role as Minister I have encouraged dialogue between POL and local MPs, local authorities and others. Of course, Postwatch itself as the consumer voice also has a critical role to play in all of this.

If a local authority has regeneration plans which will alter housing or working patterns or any other developments that may have an impact on the implementation of these decisions, then tell POL about it.

I want to be very clear about this consultation. It can’t make the difficult decisions and the closures go away, but it can lead to a better implementation locally, with local knowledge, of these decisions than would otherwise be the case.

I am glad that we have colleagues with us today who can say more about these issues - Sue Higgins from POL, Programme Director, Judith Donovan from Postwatch and Tony Egginton and Andrew Bowles of the LGA in the second session this afternoon.

Post Office Ltd wrote out in July to all Local Authorities with a timetable showing when they expect to produce and consult on proposals for changes in each area and confirming that no areas will be subject to more than one round of closures.

Both Post Office Ltd and Postwatch have built on the experience of the past and want to apply the lessons learned. Both parties have entered into this new programme in a positive and co-operative manner and it is important that they continue to work well together to ensure the best possible implementation.

A key difference from the urban reinvention programme is that closures will be compulsory. This is vital if Post Office Ltd is to get the right service in the right area to meet the access criteria and ensure national coverage. So closure decisions will not be determined simply by sub-postmasters’ preferences though there will be cases where there is a fit between a closure proposal and the sub-postmaster’s wish to leave the network.

And let me finally say something about the timescale of all this.

There have been calls for local consultations to run for 12 weeks. We considered this very carefully because we do want a dialogue about this. But we were also very aware of the uncertainty caused by the programme for both customers and for sub-postmasters. We took into account that the early stages of the local process involve detailed plan development discussions with Postwatch and contacts with, and input from, local authorities in advance of formal public consultation. When this is then combined with the subsequent six weeks of public consultation, we believe that this will enable sufficiently robust consultations to take place at a local area level whilst reducing uncertainty beyond what it would have been with a lengthier programme.

So, in conclusion, this is a challenging time for the Post Office Network. And the challenge as I said is to innovate so that more people want to use the post office. Some of this is already happening with services such as foreign currency, travel insurance, free cash machines and others helping to draw people in through the doors. And I know that both Post Office Ltd’s management and the Federation of Sub Post Masters are thinking creatively about the future. That will be needed to achieve what we all want to see in the future which is a viable and sustainable Post Office network, offering a range of services to communities in every part of the country. That’s our aim and although the changes we are going through are not easy, I believe we can make it.