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Mr. O'Neill: I am aware that the right hon. Gentleman attended yesterday's hearing, and I hope that he can now answer a question that I should like to have asked him then. In what circumstances was the contract renegotiated in February 1997? Was he a party to that renegotiation? Was it exclusively his concern, or was the Treasury involved? I ask that, because there is a seamlessness about the Treasury's attitude across the decades. Was the Treasury looking over the right hon. Gentleman's shoulder and that of the Secretary of State for Trade and Industry when the contract was renegotiated?

Mr. Lilley: Not only do contracts of that complexity need to be signed: they have to be managed. When I was in charge of the DSS, I told my officials that, in respect of that contract and everything else for which I was responsible, I did not want to hear the good news, but the bad news. In contrast to the current Administration's attitude, mine was that I wanted to be the first to hear if something had gone wrong or if there were problems, not the last. Therefore, I heard that problems had been encountered soon after the contract had started. I took action: we altered the contract, and I announced that publicly and the reasons for it within weeks. The current Government have been in power for two years before telling us that they are aware that there are problems, but they have done nothing about those problems until now.

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In the statement to the House, the Government claimed that the principal reason for abandoning the benefit payment card, which I seem to recall they welcomed wholeheartedly when it was first announced to the sub-postmasters conference by the seaside--at Bournemouth, not Blackpool--was that it was now technologically outmoded, because it was now possible to move forward from the magnetic strip to the chip. I have to point out that the original contract specifically required the contractors to be ready to move to a chip, if ever that was beneficial, so the whole thing was designed to make that possible, even though none of those competing for the contract thought that the chip would add any value. However, a previous DSS Minister, the right hon. Member for Birkenhead (Mr. Field), had said:

According to Ministers, that which was previously a benefit is now a disadvantage.

Ministers then said that the contract was undeliverable and could not be brought to completion, but, as we heard yesterday, both the consultants' report and an internal report stated that it could be completed. Then, Ministers said that the contract was running three years behind schedule--indeed, the Secretary of State said today that he had known all along that the project was running late and could not be delivered in its entirety. However, in May 1998, when the hon. Member for Newbury (Mr. Rendel) asked the Secretary of State what date the smart cards were expected to be in operation, the then Minister responsible replied:

Yesterday, en passant, Ministers told the Trade and Industry Committee that they knew that the contract was undeliverable. However, the previous Secretary of State for Trade and Industry, the right hon. Member for Hartlepool (Mr. Mandelson), had told the Committee:

    "The current plans provide for post offices to be automated by the end of the year 2000 . . . I feel confident that the project will be properly completed".

The Chairman asked him, "Will it be 2000 . . . ?" to which he replied:

    "That is still the objective . . . it is still on track."

In November 1998, therefore, the project was still on track.

Ministers then said that in December they had many meetings because of developments of which they had previously been aware but about which they had not told Parliament. Indeed, they had been denying to Parliament that those developments had taken place. So they knew then that the project could not go ahead.

In January, a DTI Minister was asked when the project would be ready, and he replied that it would be ready

In February, a former Social Security Minister, who clearly would have been aware of any evidence of the project going wrong, asked when it would be ready, and he too was told that it would be ready by the end of 2000. I do not think that those who replied to him would have thought that they could pull the wool over his eyes.

It is clear that the Government either have known all along that there are problems and have been deliberately misleading the House, or have not known because they

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have not been on top of their jobs and have not been competent. Perhaps when the Minister winds up, he will be able to explain the contradiction between what the Government are now telling the House and what they have said in written answers for the past two years.

Far more worrying than the contradictions concerning the past is the lack of clarity about the future. Ministers simply have not thought through what the new arrangements will entail, because they have been forced on them by the Treasury. The new system will require everybody who is in receipt of benefits to have a bank account. However, 15 per cent. of those receiving benefits do not have a bank account. According to the Minister, 5 per cent. of them--the best part of 1 million people--cannot be expected to operate a bank account. Memorising a PIN number would not necessarily be easy for some frail and elderly people, and having to let other people know their PIN number obviously renders them extremely vulnerable. What will the Government do about that? Ministers are still thinking about it.

Young mothers who want their child benefit to be paid in cash so that they can spend it on their children will in future have to have it paid into their bank account. If they have only a joint bank account, it must be paid into that and may not, therefore, be used in the way that was intended. Will they have to open a separate bank account? If they do so, will they have to pay bank charges out of their child benefit? Ministers have no answer. What will be done about bank charges generally? Ministers are thinking about it.

Will banks be compelled to take as customers people who have no income other than benefit, even if they do not want those people as banking customers? Ministers are still thinking about it.

What will be the impact on the revenues of sub-post offices? Ministers are unable to tell us. What will happen to the network, when sub-post offices lose a third of their revenues and the extra business that handling benefits brings in its train? Ministers are unable to tell us. How many offices throughout the country will be put at risk? Ministers will not say. If Ministers intend to keep all those offices open, how much will it cost to subsidise them when they are no longer generating profits from footfall and the extra trade from channelling benefits? Ministers have not yet thought that through and cannot tell the House.

I have to tell the House that the policy is the resultof a Treasury victory and it is a defeat for the sub-postmasters and postmistresses of this country. It is a defeat for the customers, benefit claimants and communities that depend on those sub-post offices. Ultimately, it will prove to be a defeat for taxpayers, who will have to pick up the bill at the end of the day.

5.34 pm

Mr. Martin O'Neill (Ochil): I welcomed the White Paper last week and I still do a week later, after spending yesterday afternoon questioning Ministers and officials at a public hearing of the Select Committee on Trade and Industry. I still believe that this is a good deal for the Post Office and for the people of Britain.

Many of us were becoming extremely impatient and wondered whether we would ever see the White Paper. As has been said, there have been more Secretaries of State than White Papers. It was obvious that, the longer

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we delayed, the more difficult it would be for the Post Office to get its act together to face the challenges of the new millennium, which, to a large extent, are already with us.

The German Parcel deal will give the Post Office access to the central European network and will transform at least part of its operations, but far more investment must be made if the north American market and others are to be cracked.

Among the most encouraging parts of the White Paper are the sections on consumer protection and service obligations. We also look forward to hearing moreabout the regulatory arrangements. I use the word "arrangements" because I hope that the regulatory system will not be the remit of one person, but that several people will be appointed who are capable of developing that complex and innovative area of regulation.

One aspect of the White Paper that disappoints me is the restricted role that is envisaged for the regulator in respect of securing access to information about other players in the postal and parcels market, apart from the Post Office. That role needs more consideration.

If the Post Office is anything to our constituents, it is either the letter delivery service or the local post office. The universal service obligation and the manner in which that will be enshrined in legislation is extremely encouraging; it suggests the seriousness with which the Government are addressing that fundamental part of their responsibilities, which the postal service must embrace.

In today's debate we have heard incessantly about rural post offices. I have a semi-rural constituency. Parts of it were, and still are, mining villages with considerable unemployment, where people depend on the post office not only because that is where they obtain their benefit, but because it is the only facility in their community that offers anything approaching financial services and banking of the most limited and basic kind. We should remember that about 60 per cent. of rural parishes have post offices but only 10 per cent. have banks or building societies. Of necessity, therefore, people have to go to the local post office to get their money.

The Opposition are scaremongering. That is a fair enough tactic--Oppositions do it. We spent long enough perfecting scaremongering ourselves to know when we see a scare story being fomented. We acknowledge that, as has been said repeatedly, the post office network is fragile. That is one reason why the Post Office must start generating profits that it can use, and why the Treasury must not filch 95 per cent. of Post Office profits.

We hear a great deal about the malign role of the Treasury. We do not hear much condemnation of the way in which the Treasury creamed off so much of the profits of the Post Office when the previous Government were in power.

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