Stephen Timms MP

National Federation of Sub-Postmasters

I am an optimist about the prospects for the Post Office network. I don't know how many optimists we have in the Conference this afternoon, but I am certainly one of them. The Post Office has more branches than all the banks and building societies put together - more than Tesco, WH Smith and Boots combined - the biggest retail network in Europe. More important, you are the most trusted retailer in the High Street.

That regard has been underlined again by recent research just completed by PostComm about rural areas. They found that 85% of people in rural areas agree strongly that the post office has an important role in their local community. The Post Office has an unrivalled bond of trust with the British people - as every MP knows from their post bag week after week. Those are great strengths which underpin a great business. And however disconcerting the uncertainty and anxiety as the network goes through the transition which is under way today, the successful outcome in my view is not in doubt.

You don't need me to tell you the problems the network has faced in recent years. I know that some of you will take the view that I and my colleagues have been the cause of many of the problems! What I can tell you is that we are determined to work with you - and with your Federation - to solve the problems. But sometimes it is helpful to present a Government perspective on how the business in which you work looks, so let me just set out for you how we see the challenges which you are facing.

It is very nearly three years since the publication of the PIU report - "Counter Revolution - Modernising the Post Office Network" in June 2000. It presented an analysis which we all shared and agreed with - that the Post Office network had for all sorts of reasons not kept pace with change, nor taken the best advantage of its very highly trusted and respected status. We all agreed with its vision of "bigger, brighter, better" Post Offices. In Government we accepted all the recommendations of the report, with universal banking at its heart.

Many of the statistics are pretty stark. Over 43% of people now have their benefit paid into bank accounts, compared with only a quarter in 1996 - and that is 43% before the direct payment programme began. 60% of new pensioners were already choosing payment via a bank account before direct payment started.

Over the last five years or so, the number of retirement pensions and widows' benefits paid by order books and giros dropped by over a million, from 6 million to less than 5 million, even though the number of people receiving the benefits in total increased by over a million. The pattern with other benefits, and with other Post Office business, has been similar. Customer habits and demands have been changing fast - and the reductions in Post Office business which have resulted have only in part been offset by increases in vehicle licences, lottery sales, foreign currency and travel insurance. Something much bigger has been needed.

I want to put it to you that the problem of the Post Office has been that it has been locked for years into declining markets. What we have to do now - and what we are doing - is opening up the network instead to new and growing markets, to give the business a successful future.

So that is why, in a completely unprecedented move, the Government has invested half a billion pounds in the technology for universal banking - delivered on time and on budget in every single post office in the country. I know that some people have been anxious that they haven't seen the system used very much yet. Don't worry, it soon will be. We deliberately slowed down the numbers to start with to make sure that it works well, which it does. The numbers will start now very quickly to increase.

David Mills announced this morning that Lloyds Bank ordinary current account holders will soon be able to obtain cash across the counter, just with their Cashpoint cards, at any post office in the country. That is a major plus for Lloyds TSB customers, who will have the great advantage which has already been enjoyed in the last few weeks by current account holders of Alliance & Leicester and Barclays. It means that almost 20 million current account holders will be able to use their cards for cash at the post office. 20 million people who - in many cases for the first time - have a compelling reason to use their local post office. Its great for them, but it's a great opportunity for the post office too. It is a great opportunity to attract in to the post office a new generation of customers, many of them on higher incomes, with all the advantages for footfall which that will make possible.

When I was thinking about what to say to you today, I dug out my National Savings Bank ordinary account book. I used to use it pretty regularly when I was a student and when I started to earn a salary. The last entry in this book is 9 July 1983. But now, for the first time in twenty years, thanks to universal banking, I will be getting my cash at the Post Office again - and there will be millions more just like me, turning up at every post office from Lands End to John O'Groats as people realise what between us we have enabled the Post Office to deliver.

And there is more to come. My colleague Martin O'Neill, the Chairman of the Trade and Industry Select Committee, has suggested that the other banks should be pressed to open up their networks in the same way too. Frankly, if I was a customer of one of the banks which have not yet agreed to do so, I would be starting to ask some hard questions. Access at the post office is a huge boon for customers, and I am quite certain that the customers of the other banks will start to demand it too.

But already, without any further announcements, far more people can now readily get cash from the Post Office than have for years been getting it via giros and order books. That is a mountain of business which you and the Post Office can win, and I believe that you will. And unlike the market which you have been locked into for years, it is a growing market, which will allow you to grow and expand your businesses for years to come. And we haven't even begun to speak about the new financial services products which will propel the Post Office into an entirely new ball game altogether, and I know that Alan Leighton wants to talk about that tomorrow.

I have said that I am an optimist, but that doesn't mean I am pretending that we don't have any problems today. I understand completely the uncertainty and the anxiety which sub postmasters feel as they contemplate the prospects for the transition in the next couple of years.

But I need to say this to you. We have not brought a superb new management team into this organisation in order to see it fail. We did not invest half a billion pounds in great technology for the sake of it. We have not committed £150 million pounds a year to the rural network - this year, next year and the year after - in order to see the network run into the sands. Already, we have seen a sharp fall in the number of rural closures, and quite a number of rural re-openings, reversing the trend of decades.

We are not going through the painful, painstaking process of urban reinvention - with decent compensation for those who leave the network, as your Federation has negotiated - we are not doing all that in order to see the network take a nosedive. Every day I am talking to MPs who are concerned about a Post Office closure in their urban constituencies - its taking up a lot of my time, but its worth it because it helps to build a strong future for the network. In total, we are committing two billion pounds to the post office network over five years, and we are doing it because we believe in its importance for all our communities, and because we are convinced it has a great future.

I have agreed with Colin Baker and the Federation Executive that we will sit down over the coming month or so, using data from the Post Office and from DWP, as we can start to see what is happening with direct payment, and agree a view of the impact of the changes on the remuneration of sub postmasters over the next two years. Already, we can see developments which have gone the sub postmasters' way. The number of Post Office Card Accounts, for example, is much higher than the original projections. 50% of pensioners so far have opted for card accounts, and there can now be little doubt that the final number, after the two year transition, will be very significantly above the 3 million we originally assumed. We can look at that - and all the other changes we can expect over the next couple of years - and reach a common view about what the overall impact on sub postmasters' remuneration will be over that period. My own belief is that it will be a positive impact, but I am more than willing to sit down with the Federation, to open up the books and to see how well that optimism stacks up against the reality of what is happening around the country.

Let me say a few words about the Post Office Card Account. The card account is an absolutely pivotal feature of the new system. The system could not work without it. The Federation has ensured that there are no eligibility criteria for the card account - no cap on numbers. And there are going to be many more of them in use than the initial assumptions.

But let's not get this out of proportion. There are over three million people in Britain without a bank account. They suffer all kinds of disadvantages - for example, they cannot pay their utility bills with direct debits and so are paying more for their fuel than they need to. If they are of working age they face unnecessary barriers to getting into work. The change to direct payment is an important opportunity for them to consider if they could benefit from one of the new basic bank accounts. We want them to have that opportunity and that is why we have structured the process in the way that we have.

Some people have argued that we should remove the opportunity for them to talk through their alternatives. That would not be the right thing to do and we will not be doing it.

But it is simply not the case that we are making it hard for vulnerable old people to get card accounts. The numbers speak for themselves now, with half of pensioners choosing a card account. And they will all get one. Nobody is going to try and talk them out of it. Nobody is going to try and change their minds. They have made their choice and they are going to get it. Customers' freedom to choose is secure.

But the future success of the Post Office network will not be about the Post Office Card Account. Yes the card account will be an important product, but banking and financial services will be much bigger. They will earn your businesses much more, and, unlike the card account, they will keep growing. I understand of course that a bird in the hand is worth two in the bush, but don't miss the future prize by focusing completely on how many people switch to card accounts. At least as important as that is how many people choose bank accounts, and then access their bank accounts in your branches. And probably even more important in the next few months is your ability to convince, as I believe you will, new partners for the Post Office from the financial services industry that you can deliver new products and services alongside your existing ones in a professional and responsible way.

In the future, the Post Office is going to be successful, not because people have no choice but to use it, but because they actually want to use it. The Post Office will have the products and services they want, with branches in places which suit them, provided by individuals who they know and trust. Those are what is going to make the Post Office network a success.

"Do your banking at the Post Office". That is the slogan I want to ring out from the counters and the billboards and the roof tops over the next few months. If you live in the countryside with no bank branch for miles, like my brother near Filby Post Office in Norfolk, you can do your banking at the village post office. If you live as I do in an inner city area near a parade of shops, you can do your banking at the post office on the parade rather than going all the way up to the High Street.

I met a group of sub postmasters in Inverness at the invitation of my colleague David Stewart the local MP. They hit the nail on the head - the real opportunity for the Post Office looking forward is offering access to bank accounts and financial services. Because those are services which everybody in the country will use and which will allow the Post Office to expand its base of customers, rather than locking it into a dwindling group of customers as we have seen over the past few years.

One of them who runs a branch in a rural community with a large council estate, made the point to me, and rightly, that life can be very hard if you don't have a bank account. Many of those people will be able to open a basic bank account, and then access their account at the local post office. So universal banking can go a long way in reducing the scale of financial exclusion which is all too common today. The Post Office can continue to serve its traditional customers in a modern and dignified way, and extend the opportunities available to them.

But it can serve millions of new customers as well.