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Mr. Byers: I apologise for the delay in replying to the hon. Gentleman. I will ensure that he gets an answer as speedily as possible. I am trying to remember how quickly we managed to agree the German Parcel deal. We are talking about days rather than months. We can move quickly if there is a commercial need for a fast decision.

The commercial freedoms that we have granted will help the Post Office. We will guarantee for the first time, in the five-year strategic plan, the strategic direction of the Post Office; but we will not get involved in its day-to-day running. For the first time, we will protect the universal service obligation in law, so that for the same fee a letter can be posted and delivered anywhere in the country. We think it an important principle that it should cost the same to send a letter from Westminster to the Isle of Skye as from Westminster to the Isle of Dogs.

I know that there is a lot of interest in why we thought we should not proceed with the benefits payment card in the Horizon project. The previous Government initiated the project and contracts were signed in 1996. The concept of the card was first officially announced by the right hon. Member for Hitchin and Harpenden at the Conservative party conference in 1994. He set out clearly the benefits that he thought would come from the card.

It quickly became clear that the contract would not work, and in February 1997 the previous Government began to renegotiate it with ICL. We are unaware of the details surrounding that renegotiation or of the advice that was received by the right hon. Gentleman before he

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entered into the contract with ICL for the benefits payment card. Perhaps he will tell us what advice he received before he gave the go-ahead. It is clear that the contract has not been in the public or the national interest. It has cost the taxpayer hundreds of millions of pounds. The right hon. Gentleman has many questions to answer. The public rightly demand answers about his conduct and actions.

We tried to make the contract work, but it became clear early on that there were great difficulties, primarily because there were two parts to the agreement--the automation of the network and the benefits payment card--and it was a complex matter to put them together. The automation of the network itself was difficult. There are 19,000 post offices in the network and it is the biggest single retail network in Europe. Automation was necessary, but the inclusion of the benefits payment card on top of that created the difficulties with which we had to deal.

I first became aware of the problems in July last year when I was appointed Chief Secretary to the Treasury. One of my first actions was to call a meeting of the relevant officials to discuss the way forward. As a result, certain actions were taken during the autumn to try to get the parties to agree a way forward. We were unable to do that within the costs that had been agreed with ICL and, as a result, negotiations continued early this year to try to resolve the matter. In the end, an agreement was reached with ICL and Post Office Counters for a new Horizon--a new contract based on automation by 2001. Discussions are taking place now to ensure that we can put in place the platform for automation in the Post Office network and seize the opportunities that will arise from the smartcard technology.

The hon. Member for Tiverton and Honiton had a joke at my expense about my evidence to the Select Committee yesterday when I said that I would welcome the opportunity to go into a post office to get some cash and spend some of it on a newspaper or a can of baked beans. That is an important issue. At the moment, I cannot get cash from a post office and I go elsewhere to get my newspaper and to do my casual shopping. Most post offices would welcome more people coming in and spending money who do not go in to collect benefits. We should seize that opportunity for the Post Office network.

The contract that we now have will provide such opportunities and it will be in place in 2001. Automated credit transfer will be phased in from 2002 to 2005. The hon. Member for Tiverton and Honiton raised specifically the issue of whether the Benefits Agency would attempt to manage people into the banking system before 2003. I am pleased to be able to tell the House that the agency and the Department of Social Security will not adopt that course of action, as my right hon. Friend the Secretary of State for Social Security told the Select Committee yesterday.

The Post Office network has no grounds for complacency. People are choosing ACT. Some 54 per cent. of new recipients of child benefit choose ACT, as do 48 per cent. of new pensioners. The benefit payment card, if it had been introduced, would not have been the panacea that it has been held up to be, because people are drifting away from that approach. We need something

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new, and we believe that automation, followed by the smartcard technology, will provide new opportunities for the Post Office network.

Mr. O'Neill: Who will pay for the new computers that will be located in the post offices, especially those in financial straits?

Mr. Byers: My hon. Friend raises an important point. The Post Office calculates that the cost of the whole system will be some £800 million to £900 million. The Treasury has agreed that £480 million will come from access to gilts held by the Treasury, which will effectively be a grant towards the costs. The additional amount will be made up by charges that will be made by the Post Office on people who choose to use the service, especially Government agencies. For example, the contract that has been signed with Driver and Vehicle Licensing Agency will provide opportunities for the Post Office.

The Post Office is developing new ideas and initiatives to meet the new challenges. I am keen that we should involve all the parties to ensure success, and that is why I have established a working party made up of the Post Office, representatives of the network and of the workers in the Post Office to carry through that initiative.

I have no doubt that the new financial arrangements and the new technology will be of benefit to the Post Office network. However, I feel that that will not be enough on its own and that we have to put in place a new mechanism to support the network.

We shall look for a clear indication, in the five-year strategic plan that the Post Office will have to bring forward, of how it intends to meet the new access criteria that the Government will lay down. The White Paper makes it clear that, for the first time ever, access criteria will apply to the network, so that people will know that a particular percentage of the population must live within a certain number of miles of a Post Office facility. Those criteria have never existed before, but they will be introduced by this Government. Another of the duties placed on the regulator will be to ensure that the criteria laid down by the Government will be met.

Mrs. Browning: Will the Secretary of State clarify the point about funding the capital cost of the automated system? He said that there would be some Government funding and that the rest would be made up through contracts from Government agencies. Will that take the form of a down payment in a lump sum? For example, if the Driver and Vehicle Licensing Agency contract is to be secured and continued through the Post Office network, would the DVLA be required to pay a premium or a lump sum in advance?

Mr. Byers: Agencies pay for the service that they receive. The business was put out to tender, and the agencies have recognised that the Post Office network offers the best deal for them.

However, I do not want to mislead the House by implying that only Government agencies will be involved. Financial services will also use the network. We know that the Post Office is in discussions with the Co-operative bank, Alliance and Leicester and Lloyds TSB about how financial services could be offered through the network. It is worth bearing in mind the fact that the network is in

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a very attractive position commercially. For example, 60 per cent. of rural parishes have a Post Office outlet, but only 10 per cent. of them have a bank. The network is in a strong position to secure an important part of that market and to charge the banks commercial rates for the services that it can offer.

Mrs. Browning: The Secretary of State has described what would be a revenue payment. Where would the £1 billion of capital investment come from to put the system in place before contracts can be offered for tender?

Mr. Byers: When the hon. Lady sees the figures, she will understand that the £800-£900 million that thePost Office has in mind is spread over the whole contract period, which extends to 2008-09. By then, there will be a clear revenue stream, which will help to meet those costs.

I was talking about the mechanisms in place to protect the network. For the first time, the stronger Post Office Users National Council will be able to express its views about the closure or proposed closure of a particular rural post office.

Mrs. Gwyneth Dunwoody (Crewe and Nantwich): I apologise to my right hon. Friend for intervening, but he has placed some emphasis on rural post offices. Those of us who led fairly energetic campaigns to protect Crown offices and rural post offices know that, although it is important to be able to express a view, it is even more important to ensure that post offices are retained. Will my right hon. Friend give the House some assurance on the retention of rural post offices, rather than simply on the right to express a view? Some communities express their views with vigour and intelligence, but are still ignored.

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